life. money. probability.
AUGUST–OCTOBER 2020
PODCASTS RISING Apple and Spotify step up as radio pros reboot and a new industry emerges
FIVERR: THE AMAZON OF FREELANCING
P LUS
Norm Pattiz on Vodcasting 10 Must-Listen Podcasts iHeartMedia’s Long Game Vinyl is Here to Play
Free Digital Subscription getluckbox.com
the control freak's guide to life, money & probability
august–october 2020
PODCASTS RISING Empire builders are joining the revolution in audio
15 Podcasting Comes of Age Big names and big money are transforming what was once a do-ityourself medium.
18 One Network Under Norm Norm Pattiz built Westwood One, the nation’s largest radio network, before turning podcasting power player at PodcastOne.
22 Ten in a Million
Among the more than one million available podcasts, these merit special attention.
24 Advertisers Discover Podcasts
Pre-recorded ads are replacing “live” spots read by a host. What does it mean for the industry?
26 Power-up Your Podcast A consultant aims to share her knowledge of tech, marketing and creativity.
28 High Fiverr
Fiverr connects freelancers and gigs with Amazon-like efficiency.
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luckbox | august–october 2020
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editor-in-chief ed mckinley managing editor yesenia duran associate editor mike reddy technical editor mike rechenthin contributing editors vonetta logan, tom preston creative director jacqueline cantu Vinyl rules at Chicago’s Dusty Groove record store.
contributing photographer garrett roodbergen editorial director jeff joseph
p. 33
trends RECORD HIGH 33 Vinyl’s Decade of Growth
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The Strangle BASIC
NORMAL DEVIATE
36 Stocks That Rock
BOOK VALUE
40 The Luckbox Bookshelf POKER
42 Take This Poker Quiz
49 Start Here: Calculating Volatility
THE POLITICAL TRADE
38 Hedging Political Bets
trades 55 iHeartMedia: A Long-Term Podcast Play
THE TECHNICIAN
media & business inquiries publisher: jeff joseph jj@luckboxmagazine.com
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Luckbox magazine, a tastytrade publication, is published at 19 n. Sangamon, Chicago, IL 60607
58 Don’t Touch That Dial
INTERMEDIATE
50 The Limits of Standard Deviation ADVANCED
52 Low Price, High Risk
61 Futures: Ticked Off
DO DILIGENCE
62 Streaming Goes Mainstream
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46 Meet Tom Preston
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CLOSING TICK
64 Finally, a New Generation of Risk-Takers
TRADER
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ISSN: 2689-5692
FAKE FINANCIAL NEWS
10 Daddy’s Home
ROLLING THE DICE
47 The GOP & the S&P
Editorial offices: 312.761.4218
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44 Die Probability
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Luckbox magazine content is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities and futures can involve high risk and the loss of any funds invested. luckbox magazine, a brand of tastytrade, Inc., does not provide investment or financial advice or make investment recommendations through its content, financial programming or otherwise. The information provided in luckbox magazine may not be appropriate for all individuals, and is provided without respect to any individual’s financial sophistication, financial situation, investing time horizon or risk tolerance. luckbox magazine and tastytrade are not in the business of executing securities or futures transactions, nor do they direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. luckbox magazine and tastytrade are not licensed financial advisers, registered investment advisers, or registered broker-dealers. Options, futures and futures options are not suitable for all investors. Transaction costs (commissions and other fees) are important factors and should be considered when evaluating any securities or futures transaction or trade. For simplicity, the examples and illustrations in these articles may not include transaction costs. Nothing contained in this magazine constitutes a solicitation, recommendation, endorsement, promotion or offer by tastytrade, or any of its subsidiaries, affiliates or assigns. While luckbox magazine and tastytrade believe that the information contained in luckbox magazine is reliable and make efforts to assure its accuracy, the publisher disclaims responsibility for opinions and representation of facts contained herein. Active investing is not easy, so be careful out there!
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luckbox | august–october 2020
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PODCASTING’S POWER PLAYERS We hardly need to use our ears How music changes through the years Let’s hope you never leave, old friend Like all good things on you we depend So, stick around ‘cause we might miss you When we grow tired of all this visual You had your time, you had the power You’ve yet to have your finest hour —Radio Ga Ga, Queen (1984) This issue’s theme is how radio evolved into podcasting, and it’s embodied in the careers of three entrepreneurs featured in these pages. Each has capitalized upon skills honed in radio to help lead the podcast revolution. Norm Pattiz, whose story begins on p. 18, created the nation’s largest radio network, Westwood One, by breaking the rules of the medium. But he wasn’t intentionally defying convention. As a former TV executive he just didn’t know he wasn’t supposed to do things like package Motown jams for a white demographic. Now, Pattiz’s independent spirit is guiding PodcastOne, a network with about 300 significant podcasts and record-shattering download stats. And he’s pushing the boundaries of podcasting by adding videos to create vodcasting. Stuart Last (p. 24) worked 12 years for the BBC before landing in New York when his wife took a job stateside. He was ready to work in his new home but found himself turned off by the limitations of American commercial radio.
Then Last found a new home in the freer, more creative world of podcasting. As CEO of Audioboom, he helped the company change course from supplying radio and podcasting services. Today, the company concentrates on producing and distributing podcasts, and its stable includes 250 moneymaking premium offerings. Traci DeForge (p. 26) loved her 18 years in sales and management in Atlanta-based radio but spent the next 15 years as a businessdevelopment consultant. When podcasting emerged, she seized the opportunity to combine her two avocations by launching a consultancy called Produce Your Podcast. Her company offers creative advice, tech expertise and marketing assistance to podcasters who range from novices to experts. Together, these three entrepreneurs provide a snapshot of the present moment in the evolution of audio. But they’re part of a long, long story. Sound opinion Mankind recorded the human voice for the first time in about 1860 but lacked any way of playing it back. It wasn’t until 2008 that researchers discovered a way to translate those “squiggles on paper” into the barely discernable sound of a children’s song in French. In the intervening years, researchers who may not have known they were paving the way for radio pondered the behavior of sparks in jars. Eventually, they discovered and described radio waves. Then people
Thinking Inside the Luckbox
Luckbox is dedicated to helping active investors achieve skill-derived, outlier results. 1 Probability is the key to improving outcomes in the markets and in life.
6
2 Greater market volatility brings greater opportunity.
3 Options are the best vehicle to manage risk and exploit market volatility.
4 Don’t rely on chance. Know your options because luck smiles upon the prepared.
figured out how to use those waves. It led to a progression from terrestrial radio to satellite radio and now podcasting, and this issue follows that trajectory. Along the way We also take a side trip away from the story of audio to a story some would consider a flashback to the recent past. As part of a Luckbox report on the state of vinyl records, the magazine pays a virtual visit to Chicago’s Dusty Groove record store (p. 33). Rounding out the features in this issue, readers will find an article on p. 28 about Fiverr, the online marketplace where freelancers and potential employers find each other. As Americans continue to work from home, the site can only gain in importance. Besides features, this Luckbox contains the usual mix of columns on stocks, options, probability, media, entertainment and lifestyles. It’s all part of the ongoing effort to help readers make their own luck. Feel free to use either of the methods below to contact the editors. Ed McKinley editor-in-chief
two ways to send comments, criticism and suggestions to Luckbox Email feedback@luckboxmagazine.com Visit luckboxmagazine.com/survey A new survey every issue.
luckbox | august–october 2020
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Luckbox Reader Survey
The magazine polls readers every issue. Here are some recent responses. Have you listened to vinyl records in the past three months?
Did you attend a live music event or concert in 2019?
Yes..................... 42%
In the past three months, have you purchased any vinyl records?
Yes..................... 53%
Do you expect to attend an indoor live music event or concert in 2020?
No....................... 57%
Yes..................... 9%
No....................... 47%
Yes..................... 25%
No....................... 91%
No....................... 48% I don’t know....... 27%
WHAT IS THIS THYNG?
HELP WITH THE NEXT ISSUE! Please take the reader poll at luckboxmagazine.com/survey
Take the reader survey. Luckbox may publish your comments!
Open Outcry This issue
“I think podcasts are going to explode even more into the future. I used to listen to the radio every day on my commutes to work, but now with the pandemic, I don’t really get to listen to the radio that much. Since I am stuck at home, my listening has completely transitioned to podcasts only.” —Andrew Kang, Dublin, CA “I love podcasts. I really like how the medium can be adapted for everything, from daily information shows to episodic fiction. Additionally, being housed in a central location—I mainly use Spotify—I can listen to what I want when I want. The ad load is usually relatively low, which is a big value add for me.” —Justin Bellassai, Columbus, OH “I think podcasting is getting a little saturated right now, with all of the different casts. I also think it’s just another venue for certain people to spread misinformation and conspiracy theories.” —Anthony Primozich, Yellow Springs, OH “Luckbox is kind of like my weird uncle: a little off the wall, but very interesting.” —Rick Smith, Buford, GA
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Luckbox has launched a political prediction market podcast, The Political Trade. See p. 38
Last issue
“MMT will probably continue to work as long as the world does most of its international business in dollars. If/when that ends, look out below. On a deeper level, I’m against runaway spending. We must live within our means. The government should as well.” —Bill Kern, Point Reyes Station, CA “A bird in the hand is worth a lot more than a bush full of imaginary birds.” —Toby Z., Chicagoland, IL “When times are good, we print less money and inflation is lower. When times are bad, we print more and inflation rises. However, printing money—and thus spending the new dollars on programs to boost economic output—is what will get us back to the good times: less printing and less debt.” —David Schulz, Lahaina, HI
THYNG, an augmented reality app, links Luckbox magazine articles to additional digital content. Simply scan any page with a THYNG icon to view video footage on a digital device.
1 Download the free THYNG app
2 Select the “Targets” mode, scan any Luckbox page that contains the THYNG icon
3 Watch the page come to life with enhanced content!
8/7/20 1:05 PM
SHORT INTEREST
PODCASTS RISING
51% of freelancers say no amount of money would entice them to take a traditional job. Source: Upwork and Freelancers Union’s 2019 Freelancing in America”study
SEE PAGE 28
72,000 turntables were sold in the U.S. in 2019, up from 68,000 in 2018.
SEE PAGE 33
“Artists need tens of billions of streams to get the same money that Joe Rogan was just given for his show. What Spotify is saying basically is, ‘We value this podcast more than we value any single artist on our platform.’ ” —MIDiA Research managing director Mark Mulligan in an interview with Rolling Stone
SEE PAGE 22
“In my 17 years of doing this, I had never dealt with anybody as unprofessional and disloyal and greedy as those two.”
SEE PAGE 10
—David Portnoy, founder of Barstool Sports, on the Call Her Daddy podcast hosts
Source: Statista
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“His show is better, and he’s more relaxed. I’ve been clear: I want Howard Stern to work at SiriusXM for as long as Howard Stern wants to work.” —SiriusXM CEO James Meyer on Stern’s contract that expires at the end of 2020
68 million people in the U.S. listen to podcasts weekly.
“Among U.S. counties with populations greater than 500,000, during the week ending June 13, the median estimate of the county-level probability of a confirmed Covid-19 infection is one in 40,500 person contacts.” —June 24 study published on medRxiv.org
SEE PAGE 44
SEE PAGE 18
august–october 2020 | luckbox
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FAKE FINANCIAL NEWS
Daddy’s Home!
Barstool Sports’ Call Her Daddy changed the podcast industry forever and then disappeared in a soup of scandal. Now it’s back—sort of.
By Vonetta Logan
T
hose who live for drama have come to depend upon reliable sources that include politics, reality shows, YouTube influencers—and now, podcasts? The formerly placid world of podcasts, once ruled by the dulcet-toned policy wonks of NPR, has been upended in a messy display of millennial hubris. It’s a scandal filled with sex, feminism, a guy in a suit and a man the internet loves to hate. Luckbox breaks down the Call Her Daddy furor and what it means for content creators, media channels and dudes who like to send pics of their junk. Call her what? In one of the most gobsmacking origin stories of all time, two hot chicks walk into a bar and walk out with a podcast. No, seriously. In 2018, Sofia Franklyn, 27, and Alexandra Cooper, 26, were vigorously discussing their sexual predilections in an Austin, Texas, bar during South by Southwest. As a crowd of randy men gathered, one yelled, “Y’all should have your own show!” So, they started a podcast from their New York City apartment, and one month later Barstool Sports came a knockin’ and signed the duo to a three-year contract. Call Her Daddy was born. The two discuss hook-ups, breakups and everything in-between in what they deem “uncensored, real, female locker room talk.” Seriously, this podcast can make a trucker
Two hot chicks walk into a bar and walk out with a podcast. No, seriously. 10
blush. In an anecdote pertaining to the show, a registered nurse was put on paid leave for merely suggesting to another coworker that they should listen to it. Rise of the Daddy gang In the two years since its launch, the podcast has rocketed up the Apple and Spotify charts. Call Her Daddy jumped from 12,000 downloads to more than two million downloads in just two months. Men really wanted to learn how to slide into a woman’s DMs apparently. At the time of this writing, Call Her Daddy sits at No. 14 on the Apple (AAPL) Charts and at No. 10 on Spotify (SPOT). According to Erica Nardini, CEO and babysitter at Barstool Sports, “more than 35% of Barstool’s revenue now comes from the company’s podcast business, and Call Her Daddy was the crown jewel,” reports The New York Times. Free the fathers? Getting paid to talk about who you’re boning sounds like nice work if you can get it. (Sorry Sister Francis.) In one episode, Cooper laments how hard it is to have intercourse with an NHL player (gotta take separate Ubers to dinner) while also boning her wealthy ex-boyfriend. Who can relate, amirite ladies? Franklyn and Cooper, both relative unknowns before they became Daddies, have now garnered millions of followers on Instagram and wanted to pursue spin-off opportunities like merchandising, book deals or maybe even Daddy, the Movie? But Barstool Sports owns the show’s intellectual property, including the logo, the name and even the concept. Anyway, the pair posted their last episode
together on April 8. But before that, the show’s titles became increasingly cryptic. Shows were called “It’s Over,” “We Had Fun” and “Sorry for the Sh*t Show.” Fans lamented on Twitter and urged Barstool to #FreetheFathers, an affectionate name for the hosts, or “fathers.” What had started as flirty, feminine fun was now devolving into something darker, but the internet wasn’t sure what. Daddy speaks Dave Portnoy, 43, the CEO and founder of Barstool Sports, is the bad boy blogger the internet loves to hate. Portnoy sold a 36% stake in Barstool to Penn Gaming (PENN) in January, valuing Barstool Sports at $450 million. Barstool has become a major force in the millennial marketing space. On May 17, Portnoy took over the Call Her Daddy feed and uploaded an incendiary play-by-play of all the Daddy Drama. Calling Franklyn and Cooper “unprofessional, disloyal and greedy,” Portnoy revealed the podcast had ground to a halt because of a messy contract dispute. The New York Times writes that “in his tell-all, Mr. Portnoy said that Ms. Franklyn and Ms. Cooper had each taken home nearly $500,000 last year, a figure far higher than many fans imagined.” Imagine getting paid $500,000 dollars a year for talking about period sex! Fans were livid. In one episode sponsored by Honey Science Corp.—which automatically applies discounts to online purchases—the girls read ad copy and ad-libbed about how awesome Honey is because “we’re broke bitches so we already had that installed on our computer.” The Times writes that “Mr. Portnoy said the company was losing $100,000 per missed episode and said that he offered the hosts a
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guaranteed base salary of $500,000 a year, plus bonuses, among other incentives that he estimated would ultimately net them millions, to return to the show.” Absentee fathers Cooper agreed to Portnoy’s deal, but Franklyn, her partner and so-called “bestie,” declined. It turns out that even though they were under contract to Barstool, the women were shopping the show around to other podcast providers at the behest of Franklyn’s boyfriend, “Suitman.” What? DRAMA! “Suitman” is Peter Nelson, 38, the executive vice president of HBO Sports. (Do these chicks ever bang regular dudes?) He’s been dating Franklyn for a year, and their sexual exploits are often fodder for the show. “Suitman and I got into a fight because I wanted to go into great detail about his penis,” Sophia mentioned on one episode. According to Portnoy, it’s Nelson who urged Franklyn not to take the deal—again, $500k a year for talking about how to send nudes. So, now the “daddies” are fighting with Barstool and each other. It was revealed that the girls made the same salary when they started, and as the show gained fame they both got raises. But Cooper handles all of the editing of the show, so she got slightly bigger raises. Franklyn maintains that the duo should have a 50/50 partnership. Fans complained that what was once a fun show about reclaiming female sexualtity has devolved into a hot mess because some chick took bad advice from her douchey boyfriend. It seems Nelson wanted to aggressively negotiate for $1 million salaries as well as full intellectual property rights. The negotiations with Barstool ground to a halt and the ladies stopped coming into the office and eventually stopped recording the show—petulant millennials at their finest. Founding fathers Suitman, the millennial equivalent of Yoko Ono, is breaking up the once profitable and domineering duo. But the story provides important lessons about content creators and the media juggernauts they need. The New York Times writes: “Media companies have long acted as talent incubators, providing content producers name-brand recognition and access to a larger audience.
Sofia Franklyn, 27, and Alexandra Cooper, 26, were the original hosts of Call Her Daddy.
But, as that talent builds a following on social media, the balance of power shifts. Often, talent no longer needs the media company to operate as a middleman, and many realize they could monetize their own platforms more effectively by themselves.” Franklyn and Cooper tapped into the sexual
This podcast can make a trucker blush.
Top 20 Podcasts Call Her Daddy was closing in on The Times and NPR in the podcast rankings. Then Daddy hit snags. U.S. Audience, as of May 2020
Rank
Podcast
1
The Daily
The New York Times
2
NPR News Now
NPR
3
Up First
NPR
4
Call Her Daddy
+11
Barstool Sports
5
Stuff You Should Know
+1
iHeartRadio
6
This American Life
-1
This American Life/Serial
7
The Ben Shapiro Show
-3
Daily Wire
8
Dateline NBC
+2
NBC News
9
Pardon My Take
10
Planet Money
Change
Publisher
Barstool Sports -3
NPR
Source: analytics.podtrac.com
august–october 2020 | luckbox
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zeitgeist in a way that hasn’t been seen before. While some describe the duo as “Canal Street Kardashians” and candidates for “Pornhub thumbnails,” they blazed a trail in podcasts by being unapologetically raunchy and risque. Their youthful exuberance paid off but was also their undoing. As the Bible says, “Pride goeth before the fall.” Yet, they also forced the podcast industry to mature a bit. “The systems for monetization are also increasingly complex,” Oren Rosenbaum, the head of emerging platforms at United Talent Agency, said of podcasting. “Most aspiring podcasters don’t think of negotiating things like ownership of their back catalog, licensing agreements, platform
exclusivity, intellectual property and more, upfront.” After the Daddy publicity, that could change. Daddy’s home! In a 30-minute video posted to YouTube on May 22, Cooper announced she would return to host Call Her Daddy solo. “I am so fucking excited to get the show back on the air and continue to talk about … shitty one-night stands,” the host said. (Again, $500k a year for this?) Her solo sessions of the podcast are still climbing the charts, but it remains to be seen whether the new format will be Daddy 2.0 or 50 Shades of Meh. Portnoy did offer Franklyn
$500k + bonuses
Annual salary for talking about hook-ups—but it wasn’t enough
her own solo show on the network, but she declined. Guess she didn’t need the $500,000 this year. Vonetta Logan, a writer and comedian, appears daily on the tastytrade network and hosts the Connect the Dots podcast. @vonettalogan
The formerly placid world of podcasts, once ruled by the dulcet-toned policy wonks of NPR, has been upended in a messy display of millennial hubris.
Listen Here Truth or Skepticism
Tom Sosnoff, entrepreneur, options trader and co-CEO of tastytrade, joins Dylan Ratigan, businessman, author and former host of MSNBC’s The Dylan Ratigan Show, for a weekly podcast covering everything from sports and investing to politics and monetary policy. One’s an iconoclast, and the other’s a contrarian. Tune in each week find out who is who. It’s unscripted and unpretentious—some like to think of it as rants, but refined.
The Political Trade
The only podcast devoted to political freaks and probability geeks seeking fun and profit in political prediction markets. With each new episode, this Luckbox podcast interviews elite prediction market traders and political insiders who offer actionable insights on the week’s best predictionmarket trading opportunities. Recent memorable episodes feature James Carville, Anthony Scaramucci and the team from Barstool Sports’ Hard Factor.
Truth or Skepticism and The Political Trade are available on your favorite podcast platform.
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PODCASTS RISING Podcast networks are selling for hundreds of millions of dollars, but nothing’s stopping anyone of modest means from starting a podcast. Celebrities want to make the podcast scene, but nobodies can appear anytime they choose. Fortune 500 companies are pouring cash into podcast ads, but the vast majority of podcasts never make a dime. Narrative formats are showing up in podcasts, but extended conversations remain among the most wildly popular podcasts. Podcasting began as an audio medium, but now it includes video. So, what’s next? Just about anything—and its exact opposite!
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One Network Under Norm 14
22
Ten in a Million
24
Ad Dollars Discover Podcasts
26
Power-up Your Podcast
luckbox | august–october 2020
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PODCASTING COMES OF AGE Big names and big money are transforming what was once a do-it-yourself medium Ed McKinley
he world may someday look back on this as the “Golden Age of Podcasting.” Half of all Americans already consider themselves fans of the relatively new medium, and converts join their ranks daily. And why shouldn’t they? For free or for a modest subscription fee, podcasts provide all of the music, drama, comedy, sports, news and opinion that’s available on older media. Plus, podcasts offer two priceless new characteristics: greater choice and more control. Viewers and listeners can download whatever they choose from among 29 million episodes of more than one million podcasts, and they wield absolute, on-demand power over when and where to experience them. With choices expanding and the audience growing, celebrities are embracing podcasting, big media companies are taking an interest in podcasts and the potential for podcasting profit is coming into focus. In short, podcasting just keeps getting bigger and richer. But how did it all get started?
T
Terrestrial radio Many trace podcasting’s origin back to the beginning of wireless audio—that moment in 1895 when Italian Guglielmo Marconi transmitted a radio signal on the U.K.’s Isle of Wight. By 1905, radio pioneers were delivering music and talk to dispersed audiences, and by 1920 broadcasting was turning commercial. Thus, the “Golden Age of Radio” began in the Roaring ‘20s and continued into the Complacent ’50s. In 1947, 82% of Americans classified themselves as radio listeners. By 1955, virtually every household in North America, Western Europe and Japan had acquired a radio. Think of families gathered around the living room radio, their attention focused on sounds emanating from a single speaker in a large
box. They marveled at their first concerto, swooned over the crooning of Frank Sinatra, laughed out loud at Abbott and Costello, and eagerly tracked the adventures of The Shadow. They learned of the stock market crash, the election of Franklin Delano Roosevelt, the attack on Pearl Harbor, the D-Day invasion and the Battle of Inchon. Then television intervened, spreading to most American households by the mid-‘50s. But radio got another boost in the early ’60s, when battery-operated transistor radios transformed the hardware and untethered the experience. Suddenly, radios became small enough to fit into the palm of a hand and didn’t need to be plugged into a wall socket. They could go anywhere. Still, radio soon came back to living rooms and even began finding a home in college dorms. Stereo radio became a rock-music staple of the counterculture in the late ’60s and early ’70s, taking over the FM airwaves where extremely low-key classical fare once dominated. Even today, radio hasn’t gone away. Some 92% of Americans still listen to radio over the airwaves, compared with the 87% who watch TV and the 81% who use smartphones, according to newsgeneration.com. In fact, radio has even joined the space age. Satellite radio At the beginning of the current century, ground-based stations began transmitting radio signals to satellites that then bounced them back to earth. It happened first in Africa and the Middle East in 1999 and was occurring in the United States by 2001. The tech-
Podcast ad revenues should surpass $1 billion in 2021 Source: Interactive Advertising Bureau
nology helped broadcasters reach a much larger geographical region than was possible with terrestrial radio. Three major satellite radio companies emerged in the mid-‘90s—WorldSpace, Sirius Satellite Radio and XM Satellite Radio— all of them based in the U.S. They favored a commercial-free subscription model and marketed their service mainly for use in cars. Two of them merged in 2009 to form Sirius XM (SIRI), which is still prospering. Before the merger, the two companies had spent $3 billion putting satellites into orbit and covering other startup costs. But the heavy investment proved prudent as the new medium earned a place in the lives of many Americans. Deals with automakers soon put satellite radio in most new cars. And by 2019, Sirius XM attracted 34.9 million paid subscribers, after adding more than a million annually for 10 consecutive years, according to The Hollywood Reporter. A celebrated cultural event occurred in 2006 when shock-jock Howard Stern switched from terrestrial to satellite radio. The Federal Communications Commission grew weary of Stern’s on-air violations of public decency standards, and the private nature of satellite radio freed him to say whatever he pleased. The importance of Stern’s transition to satel-
Former MTV VJ Adam Curry and software engineer Dave Winer generally get credit for creating podcasting. august–october 2020 | luckbox
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PODCASTS RISING
AUDIO’S OLD DAYS To grasp the changes wrought by podcasting, consider the media of the recent past. Return for a moment to a summer day in 1961 and view the programming choices in a suburban American household. Imagine a 10-year-old boy flopping down in front of the family television. He’s confined to the living room sofa because it would take two good men to carry the bulky set to another location. He’s limited to perhaps five television channels in a typical mid-sized city. They include CBS, ABC, NBC and a couple of local VHF stations that show old movies punctuated by amateurish ads. Think of that boy’s 17-year-old brother cruising in his Mercury. He attacks the radio presets, punching one button after another in a desperate attempt to find a song he can stand. His town supports two AM rock stations, and he can pick up two more from a city 100 miles away. Kids coming of age in the middle of the 20th century probably couldn’t imagine the seemingly infinite choices that streaming and podcasting would someday bring. But they could sense that they deserved something better than the restricted programming they were getting.
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lite was reflected in his initial contract, which paid $500 million, including production costs. Now, with his latest five-year contract ending soon, Sirius XM wants to keep him on the air as long as he wants to work. The size of his audience is released only to advertisers, but he attracts an estimated 12 million listeners a week and continues to make headlines. The unpredictability of Stern’s satellite shows have contributed to the diversity of Sirius XM offerings. Part of the network’s appeal lies in the variety of its programing, with more than 150 full-time channels and additional channels for live sports. But having 150 choices doesn’t amount to much compared with the 1 million choices offered in another medium—podcasting. The rise of podcasting Two Americans—former MTV VJ Adam Curry and software engineer Dave Winer—generally get credit for creating podcasting. Curry began presenting a podcast known as Daily Source Code in 2004 and was nicknamed “The Podfather.” Winer worked on the technical side. Meanwhile, the word “podcasting,” a portmanteau combining “iPod” and “broadcast,” first appeared in print in The Guardian, a British newspaper, in 2004. Earlier that year, writers had been calling the medium “audioblogging.” As the year 2004 unfolded, the number of “hits” that tech journalist Doc Searls received on Google searches for the word “podcasts” doubled every day. Major media outlets began paying attention, and podcasting was born. Podcasting comes of age These days, podcast fans are integrating the medium into the fabric of daily life. About
Podcast listeners and viewers can choose from among 29 million episodes of more than 1 million podcasts. 75% of Americans have heard of podcasts and 55% have listened to one, according to podcasthosting.org. What’s more, most who have experienced one now call themselves fans. They no longer have to settle for terrestrial or satellite radio that bases programming on the audience’s lowest common denominator. Podcasts provide the entertainment they want when they want it. Early risers don’t have to stay up late to catch the television news. Podcasts provide updates whenever listeners choose. In fact, The Daily, a report produced by The New York Times, and several National Public Radio (NPR) news shows rank among the most popular podcasts. Podcasts also provide solace for anyone feeling overwhelmed by the 24-hour news cycle. Listeners or viewers can kick back with the more-relaxed approach to the day’s events that countless podcasters seem more than happy to provide. Podcasts dispense companionship when listeners just want to hear a human voice. Conversations on podcasts center on every conceivable subject, from the intellectual stimulation of TED Talks Daily to the scripted erotic readings of Hollywood star Demi Moore on Dirty Diana. For pure entertainment, podcasts immerse listeners and viewers in anything from crime shows and mysteries to sports talk, dating advice and comedy—not to mention the
THE EVOLUTION OF AUDIO 1860 First recording of the human voice
1920 AM radio broadcasting begins
1949 45 RPM records introduced
1962 Cassette tapes introduced
1997 DVDs introduced
2004 Podcast invented
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hundreds of podcasts that defy description. But whatever the content, podcasts came of age in an important way this year when NPR’s This American Life earned the first Pulitzer Prize ever awarded for audio journalism. The show, called The Out Crowd, chronicled the plight of asylum seekers stranded in miserable conditions south of the U.S. border by America’s “Remain in Mexico” policy. Podcasting’s rising status is convincing some of the most-respected members of society to become active in the medium. In August, former first lady Michelle Obama launched a Spotify (SPOT) podcast with former President Barack Obama as her guest for the first episode. The growing importance of podcasting is also reflected in another measurement—the bushels of cash that broadcasters, satellite radio companies and software developers are paying to acquire podcasts and podcasting networks. Follow the money In recent months, Sirius XM purchased the podcaster Stitcher for a reported $325 million. The New York Times paid $25 million for Serial productions, the company behind the Serial podcast. Broadcasters seeking to become podcasting powerhouses by acquisition have included iHeartMedia (IHRT), Entercom Communications (ETM) and E.W. Scripps (SSP). Privately held software developer ringDNA has been buying a piece of the podcasting world, too. But Spotify’s acquisitions have been gaining much of the attention. The music-streaming giant spent liberally last year to build a
podcasting empire. It bought Last Podcast on the Left, acquired the Parcast podcast network, and paid $340 million for the podcast network Gimlet and podcast creation platform Anchor. The Spotify spree continued this year when the company shelled out nearly $200 million for The Ringer, a sports media company started by ESPN’s Bill Simmons. Then in one of the largest licensing agreements in podcasting, Spotify signed a multiyear $100 million contract for an exclusive lease to The Joe Rogan Experience. Within 23 minutes of announcing the agreement, the deal added $1.7 billion to the company’s market cap. Money aside, Spotify pulled off a coup in forming a relationship with Rogan. He nets 200 million or so downloads per month, and some of that popularity seems likely to rub off on other Spotify podcasts. The company is also earning a place in the annals of podcasting with the Rogan deal. His colorful career path has encompassed the arc from broadcasting to satellite radio and then to podcasting. He’s bounced around among specialties ranging from Fear Factor to standup to color commentary for Mixed Martial Arts. What’s more, Rogan’s everyman style signals a shift away from the formality of traditional media. While cooking, jogging or driving, listeners can half-focus on what Rogan and a guest are saying—and they’re not afraid to say almost anything: Think back to Elon Musk’s infamous confessions on the show. Rogan delivers the quintessence of podcasting and points to the future of entertainment.
About 75% of Americans have heard of podcasts and 55% have listened to one.
2007 Ricky Gervais’ podcast sets record of 261,670 downloads in a month
2011 Adam Carolla’s podcast sets record of more than 59 million downloads in two years
2013 Apple announces one billion iTunes podcast subscribers
2014 Serial podcast premieres: 68 million downloads in its first season
2020 This American Life podcast wins Pulitzer Prize
TURF WAR: APPLE VS. SPOTIFY Spotify is working hard to dethrone Apple as the de facto leader in podcasting. In fact Spotify has been singleminded in its pursuit of dominating the podcast industry and has made large and risky investments to do so. So far in 2020, it has launched 78 original or exclusive podcasts, acquired The Ringer, and gained exclusive rights to The Joe Rogan Experience, arguably the most popular podcast on planet earth. Those big bets seem to be paying off, even amid the global pandemic, as Spotify turned an unexpected profit in the first quarter and showed an increase in podcast listeners, quarter-over-quarter, on the platform from 16% to 19% as of April. While Apple was still the first platform to reach 1 million available podcasts, Spotify did achieve the same number about 10 days later. In terms of growth percentages, in the United States during the first five months of the year, Spotify saw an increase in listens of 32%, while Apple managed only a 13% increase. From a global perspective, it made even more significant progress by increasing total podcast listens by 51% compared with Apple’s 20%. In the battle between the two for share of voice (not considering other listening platforms), Apple is currently holding at 59% and Spotify at 41%. In the same five-month period of 2019, Apple sat at 77% and Spotify at 23%. Needless to say, Spotify’s short two-yearinvolvement in the industry is making a massive impact. —The State of the Podcast Universe: 2020 Mid-Year Report, Voxnest
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PODCASTS RISING LUCKBOX LEANS IN WITH NORM PATTIZ
ONE NETWORK UNDER NORM Norm Pattiz built Westwood One, the nation’s largest radio network, before turning podcasting power player at PodcastOne Jeff Joseph
n 1976, National Radio Hall of Famer Norm Pattiz founded I a radio syndication company that grew to become Westwood One, the nation’s largest radio network. He started Launchpad in 2012, which a year later became PodcastOne. His podcast network offers more than 300 shows, with stars that include Adam Carolla, Kaitlyn Bristowe and Shaquille O’Neal. Luckbox sat down with Pattiz to get a better understanding of what’s transforming radio into podcasting. Why is radio evolving into podcasting?
It’s a logical evolution. Before the advent of television, radio was the medium for programs. Radio had to alter its programming because television became the dominant medium of programs. The programs that people listened to were now programs that they would watch. And that prompted the advent of formatic radio—much more narrowly focused, much less network oriented, more locally oriented, with styles of music that appeal to a particular audience. Really, with the advent of “narrowcasting” radio began to thrive. As a local medium, radio grew every single year for 30 years. My background was not radio. My background was television— television as a medium of programs. So, in starting Westwood One as a syndication
Narrowcasting: Aiming media messages at specific segments of the public defined by values, preferences and demographics. It’s based on the postmodern marketing idea that mass audiences no longer exist.
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company, I didn’t know the rules, and I couldn’t be limited by them. For instance, you don’t put a radio show that’s focused toward blacks on white Top 40 radio stations. My first radio program was a 24-hour special called The Sound of Motown. Now, to me, Motown was pop music. I didn’t look at this as particularly ethnic, but a lot of people in the radio business did. But because I didn’t know what you don’t do, I did it anyway. Fifty percent of the radio stations that carried The Sound of the Motown were big honkin’ Top 40 AM radio stations at the time. I managed to get three major national advertisers whom I knew from television interested in the project, and they sponsored it. And then, after the conclusion of that particular project, I thought, “There’s a business here.” Each of the three national advertisers liked its experience in The Sound of Motown, so we set about producing individual syndicated radio shows for each of those three advertisers. One program led to another, and we basically found a formula for providing
radio stations with special programming and the kinds of things that differentiated them. We had a pretty open playing field at the time,and made a point of developing programming in every category that advertisers wanted—which is something that we’ve carried through today with PodcastOne. How large did Westwood One become?
Westwood One had gone from grossing $200,000 a year off of the single program, The Sound of Motown, to a company that was approaching $600 million in annual revenue. So, it grew rapidly and became a public company. And at its peak market cap
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of that company—and remember, this is 30 years ago, right—was approximately $4 billion. After that extraordinary success in terrestrial radio at Westwood One, you have returned with PodcastOne. What caused you to sit out of the satellite radio boom?
I didn’t think that satellite radio’s moment would last very long. I saw what was going on in general and in the very, very early stages. Satellite was primarily a music service, and I just didn’t have a lot of confidence that the satellite delivery of programs was going to be as potentially successful as the satellite delivery of music. And I think that turned out to be pretty right. You certainly turned out to be right. What explains the plateauing of satellite radio?
Competition. There are now more and more platforms where you can get satellite listening. And then, of course, there’s competition from digital platforms. Satellite radio in cars was a help, but if you’ve got Bluetooth, it’s way easier than navigating the entertainment unit in your car. What’s your forecast for satellite radio five years out, particularly Sirius XM?
Well, I think we see the handwriting on the wall—they realize that the markets they have been serving are declining, and that a lot of that audience is moving over to digital delivery of different types of programming, especially programming that’s either live or on-demand. When did you decide to apply your experience to digital podcasting?
In 2011. I had retired as chairman emeritus of Westwood One, and I had no plans of getting back into the business. But Westwood at that time asked me if I would maintain a consultancy or a boutique radio operation so that talent so closely associated with me over the years would have a better chance of staying at Westwood One. It was a company that I had founded, and I wanted to do things that were right
for the company. While I was doing that, a mutual friend, Eric Weiss, who’s a lawyer in the entertainment business, introduced me to a young man named Kit Gray, who is the president of PodcastOne now, and we had a conversation about podcasting. He was representing several broad podcasters to advertisers from his apartment in Marina Del Rey with his dog. And it was a very, very nice dog. I’ve met the dog. I’d be happy to throw the ball to the dog or play with the dog. But the dog was really not producing anything else. So, after my conversation with Kit, I thought, “Well, geez, this is just Westwood One for the digital age without having to filter your programming through a radio station,” which meant eliminating thousands of radio station program directors! That sounded good to me. So you saw this as a more efficient, streamlined way to deliver the same product with lower cost?
Well, not only the same product, but much more product. I mean, you look at podcasts today, some of the most successful would never find their way into a format on a radio station. So, in a week, Kit and I had formed PodcastOne. I didn’t need anybody to fund it. Westwood One had been very good to me as a public company. So, I funded it myself, and it was just the two of us, but we were in business. And, a large part of the story of PodcastOne was telling the story of Westwood One, and we went out and explained it to a lot of people. We made sure that before we went to a single advertising agency that we had programming in every category that you can find on what was then iTunes, now Apple Podcasts, so that when we went in to present the medium—because the medium in so many ways sold itself—we didn’t want to have them ask for a category of target audience that we couldn’t reach. We spent a good amount of time making sure that we either produced or represented programming covering every category, and
Some of the most successful podcasts would never find their way into a format on a radio station.
PODCASTONE TEAMS UP WITH LIVEXLIVE LiveXLive (LIVX) finalized its purchase of PodcastOne in July, and the two entities are planning to launch a vodcast network called “VodcastOne” to produce and market video podcasts. When the two entities announced the upcoming acquisition in May, they were already collaborating on two special vodcasts featuring Adam Carolla. Both shows generated recordbreaking viewership of more than 1.1 million live streams per event. LiveXLive operates a platform for live streaming and on-demand audio, and it offers video and podcasts devoted to music, comedy and pop culture. It maintains a live events business and offers branded entertainment, content development, advertising and merchandising. PodcastOne, a subscription and advertiser-supported podcast network, provides a home for starstudded podcasts in genres that include sports, comedy, celebrity culture and entertainment. PodcastOne’s founder and executive chairman, Norman Pattiz, is joining LiveXLive as a significant shareholder and will remain in his role at PodcastOne.
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PODCASTS RISING the growth has just been exponential ever since.
Westwood One in terrestrial radio? Where are we now?
Oh, maybe the second inning.
What does PodcastOne look like today?
We’ve got over 300 premium podcasts. On the PodcastOne site we have nearly 1,000 podcasts on our free service to small podcasters called Launchpad, and last year we were downloaded in excess of 2.1 billion times. That is not unique listening, but it’s tens of millions of unique listeners, in all categories. So, our reach is tremendous. We have the right to promote anything that’s on the network in our network programs and unsold inventory. So, for a podcast partner, it’s a big plus to be promoted to the podcast’s specific audience we reach. I mean, it’s probably safe to say that anybody who’s ever listened to a podcast is listening to something on PodcastOne. What can you tell us about revenues?
In the acquisition of PodcastOne by LiveXLive, which just closed a couple of weeks ago, they announced that there was about $27.5 million in revenue. Where do you see the current podcast industry relative to the development of
Podcasting won’t reach its inflection point until it’s a line item on every major advertiser’s budget for the year.
Correct, and I don’t think podcasting has hit its inflection point. Let me speak to it from the standpoint of advertisers’ support. We won’t hit our inflection point until podcasting is a line item on every major advertiser’s budget for the year. When network radio finally became a line item among most of the major national advertisers, the size of the business tripled overnight. We liked doing this deal with LiveXLive because they’re a video streamer of mostly music events. And in spite of Covid-19, they have really grown significantly because they’ve been doing concerts and performances from people’s homes and digitally. Another reason we like this deal is because it puts us in a different place relative to our podcast competition. It puts us in a space that we like to call my “vodcasts” because now we’re going to be able to provide streaming and on-demand content with both audio and video to our consumer
Where did all these new podcast listeners come from? What form of entertainment was the loser?
Well, I think the easiest way to define the loser is what were traditional broadcasters, traditional networks and even traditional local stations, be they radio or television.
But Gen X, Gen Z and millennials weren’t really listening to either terrestrial or satellite radio. And, we all have only so many hours of entertainment time that we can allocate.
That’s a very astute comment, and not one that I’ve heard from very many people. Podcast audiences really grew organically. And it was podcasters talking to podcast listeners, and more and more podcast listeners finding more alternative programs they would like to listen to in addition to their favorite podcasts. That’s really responsible for the growth of podcasting. So the medium has changed consumer behaviors, and created new listeners?
Well said.
What about the price of The Joe Rogan Experience acquisition?
Pattiz courtside with wife Mary and Shaquille O’Neal.
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About 75% of Americans have heard of podcasts, and 55% have listened to at least one. That implies a lot of upside.
base, which is not something at present that any of our competitors do. That’s third inning, and it may even put us in a different ballgame—evaluating the growth of our podcast business versus the growth of our vodcast business. We may be evaluating them differently, if you get my drift. Look, this is the digital age. It’s just moving so fast. I thought when I launched Westwood One that I was going to get my track shoes on and really start moving. You know, this is moving quicker, and in many ways it’s much more exciting.
He is getting all that money, and he’s not even selling the program. So it’s a great deal for Rogan. And it turns out to be a great deal for Spotify if what you’re concerned about is stock price, because the stock went way up on that announcement. It signaled that Spotify was no longer going to be totally dependent on music and formatted subscription business by bringing in a top podcaster. I’m not sure that it’s going to turn out to be profitable, but when you’re a big company like Spotify, stock price has a lot to do with it.
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Ad spending on podcasts is around $500 million, and it’s more than $17 billion for radio. What do you expect radio to look like in three to five years?
Well, radio is not going away, but I don’t think it’s going to continue the way it has. If in three to five years radio is still doing what it is doing today, they will consider that a success. There is no reason why podcasting by itself can’t become a multi-billion-dollar space— no reason at all. It’s really hard to predict because of the nature of digital, but I’m very obviously bullish. The deal that we did with LiveXLive is all stock, and the value of the stock has already doubled. And are you staying in your role after the acquisition?
Yeah, the last time I looked I was the second largest individual shareholder in the company, not counting institutions and so
forth. And part of the deal was me signing a two-year contract to remain, which I was happy to do.
The podcast Call Her Daddy isn’t a mess. That’s the format.
What do you think of the mess with Barstool Sports’ Call Her Daddy?
That’s not a mess. That’s the format. That’s a format that everybody wishes they could duplicate. That’s the best marketing you could possibly have. We had exclusively represented Barstool Sports for several years—controversy is the name of their game. So yeah, it may look like a shitstorm to a lot of people, but to their core listeners, this is their meat. They know how to make lemonade out of lemons better than anybody I’ve ever seen in this business. We’ll close on that note. We wish you continued success.
Well, it’s been a joy to talk to you guys, and we will be talking again, I assure you!
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PODCASTS RISING
TEN IN A MILLION Among the more than 1 million available podcasts, these merit special attention
The Joe Rogan Experience
Token CEO 4.9 stars 70+ episodes Debut: 2020
Joe Rogan, the biggest name in the podcast industry, attracts nearly 200 million listeners a month and ranks No. 1 with $30 million in revenue in 2019, according to Forbes. The Joe Rogan Experience, his free audio and video podcast, showcases his skills and experience as a comedian, actor, sports commentator, martial artist and television host. Rogan and co-host and producer Brian Redban launched the podcast on Christmas Eve in 2009. Some of Rogan’s long-form podcasts last up to four hours and feature diverse and provocative guests ranging from Alex Jones to Elon Musk. They’re the biggest names in entertainment, politics, business, science and, of course, the art of self defense. In May, The Joe Rogan Experience became a Spotify (SPOT) exclusive in a blockbuster deal valued at more than $100 million.
The Michelle Obama Podcast Debut: July 29
Each episode of The Michelle Obama Podcast, exclusively on Spotify, pairs America’s first AfricanAmerican first lady with one guest. The first was her husband, former U.S. President Barack Obama, and their conversation ranged from the coronavirus crisis to the Black Lives Matter movement sparked by the death in police custody of George Floyd. In a 49-minute episode, they also discussed the importance of family and ways of persuading young people to become politically engaged.
*Star rankings are based on listener reviews.
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Barstool Sports is podcasting’s fourth largest publisher, with both the No. 1 sports podcast (Pardon My Take) and the No. 1 female-hosted podcast (Call Her Daddy). During the pandemic, Erika Nardini, CEO of Barstool Sports, has been running the company from her living room. Between meetings and conference calls, the podcast Token CEO tracks her moves in real time, five days a week, with a new guest host every Friday. Nardini, Barstool Sports’ first female boss, used a recent episode to detail her visit to the White House. In February, Penn National Gaming (PENN) purchased approximately 36% of Barstool’s common stock for $163 million and will increase its ownership to 50% in three years with an additional investment of $62 million. Penn and Barstool seek dominance in online sports gambling and the iCasino market.
The Knowledge Project with Shane Parrish 4.5 stars 90+ episodes Debut: 2015
The Knowledge Project podcast helps listeners master the best of what other people have already figured out. In a world where entertainers tend to skim the surface, host Shane Parrish instead seeks rich and nuanced conversation. Guests love the show because they’re not interrupted or asked the same questions they field everywhere else. Check out episode No.82 with legendary activist hedge fund investor Bill Ackman.
PHOTOGRAPH: (ROGAN) PBG VIA REUTERS
4.7 stars 1500+ episodes Debut: 2009
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The Adam Carolla Show 4.6 stars • 2870+ episodes • Debut: 2009
Hidden Brain 4.5 stars 280+ episodes Debut: 2015
This NPR podcast bills itself as “a conversation about unseen patterns.” It aims to help curious people understand the world—and themselves. Host Shankar Vedantam coined the phrase “hidden brain” to describe influences that manipulate people without their awareness. Vedantam reveals the unconscious patterns that drive behavior, the biases that shape choices and the triggers that direct the course of relationships.
The Jordan Harbinger Show 4.9 stars 300+ episodes Debut: 2018
The Jordan Harbinger Show earns more than 4.5 million downloads each month and achieved 250,000 downloads per episode as of 2018. It’s marketed as a forum where the self-motivated can dig deep into the wisdom of the world’s sharpest minds. Dubbed “the Larry King of podcasting,” Harbinger explores the thinking of writers, creators, change-makers and intelligence operatives.
Carolla, a podcasting pioneer with The Adam Carolla Show (formerly The Adam Carolla Podcast), has enjoyed record-breaking popularity from the start with nearly two billion downloads to date. Carolla launched the podcast in 2009, long before a business model had emerged, and he joined PodcastOne in 2013 as one of the network’s charter personalities. Episodes feature news segments with wry and unapologetic editorializing and celebrity guests who opine on the events of the day.
“I don’t apologize for what I say, and if you’re not going to apologize they leave you alone because what they really want is the power of the apology. If they can’t achieve that, they’ll move on to victimize the next voice. —Adam Carolla to Luckbox on cancel culture
The Bill Simmons Podcast 4.5 stars • 300+ episodes • Debut: 2016
Bill Simmons, who’s known for his work on HBO, hosts The Bill Simmons Podcast, the most-downloaded sports podcast of all time. With a rotating crew of celebrities, athletes and media staples, the podcast receives more than 100 million downloads per month, and in 2018 revenue exceeded $15 million. In February, Spotify got the public’s attention when it bought sports and pop culture site The Ringer, which included The Bill Simmons Podcast. The deal, worth nearly $200 million, was Spotify’s highest-profile acquisition until the Rogan deal.
Disgraceland
Conflicted
4.6 stars • 90+ episodes • Debut: 2017
4.8 stars 20+ episodes Debut: 2020
Disgraceland, a music-meets-true crime podcast, tells the stories of musicians who get away with behaving very badly. Jerry Lee Lewis’ fifth wife? Dead. Sam Cook ensconced in a seedy motel at 3 a.m.? Dead. Sid and Nancy? Dead. Why? Because musicians are crazy. Because insane things happen to them. Because fans love them. And because society lets them do these things. Host Jake Brennan ranks among the most extraordinary storytellers. New listeners invariably love this podcast. It’s a Luckbox favorite.
A podcast that combines firsthand experience with expert analysis, Conflicted breaks down the complexities of history, religion and politics of the Middle East by way of an ex-Al Qaeda jihadi turned MI6 spy and a former monk turned filmmaker. Both are embedded in the heart of conflicts in the Middle East. Together, Aimen Dean and Thomas Small unpack the global implications of the region’s wars and religious fundamentalism. Compelling.
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PODCASTS RISING
AD DOLLARS DISCOVER PODCASTS As podcasting shifts from free-form conversation to scripted narrative, pre-recorded ads are replacing “live” spots read by a host. What does it mean for revenues? Ed McKinley
he podcasting industry is reshaping its approach to advertising in ways that parallel changes at album-oriented FM rock music stations in the 1970s. Instead of hosts reading every ad “live” in the middle of their programs, more spots are pre-recorded. That’s the observation of Stuart Last, a former BBC radio executive who now heads Audioboom, a New York-based podcast company that distributes about 250 podcasts. He believes the shift toward “canned” commercials is occurring at least partly because podcasts themselves are becoming more scripted and less spontaneous. “If we go back five years, probably 80% of podcasts were personality-driven with a host talking with guests in a studio—whether that be in a professional studio or home studio,” Last notes. “That was a pretty standard format.” Those unscripted talk shows tended to last 45 minutes to an hour and a half and were produced weekly—frequently enough to connect brands with advertisers, Last says. “They were easy to monetize once they have a good audience because they don’t cost a lot to produce,” he continues.
T
Talk’s not cheap Small advertisers have been attracted to talk-show sponsorships because having the
Stuart Last, Audioboom CEO
podcast personalities read the ads imbued the commercial messages with whatever prestige, expertise or star power the host had amassed with the audience. “Those ads have always been sold and then delivered by the podcaster in the fabric of the show,” Last observes. “They’re kind of baked into the show. They’re in the voice of the podcast host.” So ads could get a boost from the host’s enthusiasm and connection with the audience. That’s fine if potential advertisers are convinced they want their products or services aligned with the persona of the host. If ad buyers have their doubts, ad salespeople face challenges. “It’s been a heavy lift on the sales side, and it’s very reliant on the host of the show,” Last acknowledges. That reluctance among advertisers persists
even though many small or medium-sized businesses have gotten more than their money’s worth with podcast ads, according to Last. “I’ve seen some great conversion from the advertising that they do in podcasting,” he says of companies with limited ad budgets. “They have built their businesses on the back of podcasting.” Moreover, the opinions of small advertisers are fading into irrelevance for the top tier of the podcast industry these days, as wellheeled large companies open their checkbooks and begin to make their presence felt in the industry. Big money, lots of downloads Spotify’s multiple nine-figure acquisitions of podcasts and podcast companies are detailed elsewhere in this issue of Luckbox, and so is Sirius XM’s expensive purchase of Stitcher. Those and other cash infusions are altering the upper echelons of the industry. “Bigger media companies and bigger publishers have stepped into the space, and they’ve put more money into the development and the production of podcasts,” Last says. “So, the top-end podcasts sound a lot different than they did 10 years ago.” The big money is separating the pros from the hobbyists, Last contends. Of the more than 1 million podcasts available, he estimates that about 30,000 qualify as major players capable of generating serious revenue. “Beneath that, the other podcasts include a fantastic group of content creators, but it’s the enthusiast level or hobbyist level creators,” he says. “If you wanted to make a podcast out of your particular love of a certain genre of music or out of a wonderful sport that you are into, you could find a way to do that and you could find an audience that was into that.” But an audience of modest size won’t suffice at the professional end of the podcast spectrum, Last contends. Powerful advertisers demand 100,000 downloads per episode, Last says. Second-tier podcasts still qualify as professional if they net at least 40,000 downloads per episode, he continues. Podcasts in that category can maintain high production standards and still pique the interest of some advertisers.
Like FM radio, podcasting ad rates could wind up in a race to bottom and ad frequency would increase to compensate. Podcasting might not remain a premium medium. 24
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60% of podcast listeners have bought something based on a podcast ad 72% who have listened to a podcast for 4+ years have made a purchase
54% of podcast listeners are more likely to consider a brand advertised on a podcast Source: podcasthosting.org
Source: podcasthosting.org
For anyone with a podcast audience smaller than that, success is becoming increasingly elusive, Last believes. Five years ago a great podcast could become an organic hit, but a healthy marketing budget is becoming essential, he cautions. Some fundamentals of the podcasts themselves are changing, too. Limited longevity While old-school, conversation-oriented podcasts could theoretically continue as long as the host lived, many of the new narrative-style offerings are designed for a limited lifespan. With scripted podcasts, a series might pursue a storytelling arc that runs eight to 12 episodes, Last says. The shorter run can become more difficult to monetize because advertisers like established, long-running vehicles, Last says. But the trend toward such podcasts will continue, he predicts. Meanwhile, podcast length is shrinking and frequency is increasing, he notes. For example, The Daily podcast from The New York Times lasts just 20 minutes but comes out five times a week. That enables it to present news instead relying upon the evergreen themes of older podcasts. Some of the new formats could hamper ad sales, but that won’t slow the march of “progress.” Last views the situation as similar to what happened in FM radio when ad
rates wound up in a race to bottom and ad frequency increased to compensate. Eventually, podcasting might not remain what he calls a “premium medium.” Impending doom? “You go from this great place we have today in podcasting, where only three minutes of every hour is advertising, and there’s going to be a lot of pressure to go where FM radio is, which is 12 minutes—at least—of advertising per hour,” Last warns, adding that “it wouldn’t be a good thing for podcasting.” An alternative lies in going the way of cable television by charging for subscriptions. Perhaps 2% to 5% of a podcast’s listeners have the loyalty of super-fans and would donate $10 a month to help sustain the enterprise, Last says, noting that paid subscribers usually get perks that aren’t available to non-paying listeners. Some podcasters at the upper end of the download spectrum could also skirt the advertising issue by concentrating on the audience engagement that podcasting provides. Cable TV networks, for example, use podcasts to convince viewers to watch their movies or series. Still, podcasters should attract the ads they need by simply making the best of their medium. Last puts it this way: “We’re still creating that premium product that can sell that premium piece of advertising.”
MORE INTRUSIVE ADS TO COME? Podcast fans accustomed to hearing their favorite hosts read the show’s ads may find it jarring when a pre-recorded commercial interrupts the proceedings. It can feel like a break in the action. Besides, an ad recited by a trusted host can seem more like advice than a pitch. But it doesn’t matter. Experts predict pre-recorded ads will rule.
BIG AUDIOBOOM DYNAMITE Audioboom got its start in London in 2009 by providing services for radio and podcasting. About four years ago, the company began transforming itself into a content distributor and ad sales business in “the premium end of the podcast industry,” says CEO Stuart Last. These days, Audioboom operates globally from its headquarters in New York and bills itself as the world’s largest independent podcast company. Of its 250 podcasts, it produces 25 of them in-house through Audioboom Originals. The shift to podcasting is working. The company’s lineup of podcasts is averaging more than 8.5 million weekly downloads, according to The U.S. Podcast Report issued in July by Triton Podcast Metrics. “So we’ve kind of left the radio piece behind,” says Last, who worked as an executive for BBC radio for 12 years before joining Audioboom. Judging by that comment about taking up podcasting and forsaking radio, he’s apparently a master of the British art of understatement.
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PODCASTS RISING
POWER-UP YOUR PODCAST You can do this! A professional producer offers new and established podcasters as much or as little marketing and tech help as their budgets allow. Ed McKinley
raci DeForge viewed the burgeoning podcast industry as an opportunity to combine two of her skills: business development and broadcast radio management. So, four years ago she started a business called Produce Your Podcast to help clients handle every aspect of the business. Fledgling podcasters come to DeForge with the seed of an idea, and she helps them germinate and nurture it by providing creative advice, technical assistance, audio and video recording, editing, and distribution. Her marketing services includes creating graphics, writing blog posts, releasing newsletters, tapping into social media and updating websites. Even after finding their way in the industry, many of her yeoman podcasters remain clients for continuing tech help or marketing. They may also become committed to the podcasting communities she maintains online or find inspiration in her personal podcasts. “Half of our clients have been with us since we started, which has been fantastic,” DeForge declares. Much of her clientele comes from the ranks of business owners, consultants,
T
Traci DeForge, founder of Produce Your Podcast
authors, speakers and coaches who are seeking marketing engagement through their podcasts and aren’t necessarily looking to profit from them directly. They use their podcasts to establish themselves as subject-matter experts who are hired to address live audiences. Financial advisors have become something of a specialty for Produce Your Podcast. Some product-based entrepreneurs also take up podcasting to build their reputations but wind up attracting sponsors. In one example, an interior decorator who launched a home-improvement podcast landed a sponsorship from a major paint manufacturer, DeForge notes. Whatever the business, translating it into a podcast comes naturally for DeForge. Before opening her company she worked 18 years in radio and 15 years as a business consul-
82% of listeners spend more than seven hours a week listening to podcasts Source: Discover Pods
tant. But she never lost her love for radio, and even after leaving day-to-day radio sales and management she continued to play a role in broadcasting as an advisor and speaker. Exploring podcasting DeForge begins her relationship with prospective clients by engaging them in a 30-minute phone conversation she calls “The Discovery Phase.” Callers can ask anything about podcasting and should finish the call with a blueprint for getting started and enough information to know whether they want to work with Produce Your Podcast, hire their own team or choose a hybrid of the two. Some of the callers lack basic knowledge of podcasting, and others have progressed enough to use the call as a brainstorming session, DeForge says. She insists that they’re educational and aren’t used as a sales pitch for her company. Instead, her lead generation for new clients comes from web seminars that anyone intrigued with podcasting can hear in exchange for submitting an email address. But the web seminars provide information, too, on such subjects as time management and resource tools for podcasting.
Niche networks—like a hub for podcasts offering financial advice—will become a trend because they help listeners and viewers discover new voices. 26
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Keeping Score 9,000 downloads per episode puts a podcast in the top 5% 3,400 downloads—top 10% 141 downloads—average for a typical podcast in the first 30 days DeForge describes the web seminars as offering “tangible action steps that you can take if you’re interested in starting or if you have been running a podcast and feel overwhelmed.” They’re good for new podcasters who are prospecting for information but don’t have the budget to outsource tasks. The PodHive community The catalog of past on-demand web seminars, as well as other educational materials and educational opportunities, reside in something DeForge calls “PodHive.” It’s a community that podcasters can join for a monthly fee, and it’s aimed at everyone from hobbyists to professionals. PodHive, which DeForge launched this year, also offers a weekly small-group coaching session where listeners can pose questions. Those seeking additional help can sign up for “Office Hours,” tightly focused 15-minute one-on-one telephone sessions with DeForge that she says can often solve a problem. DeForge also has created a network called personalfinancepodcasts.com to showcase podcasts produced for the company’s roster of financial advisors. Branding differentiates the podcasters, and they hold forth on related but varied subjects. Examples of financial podcasts in the hub include Don’t Retire—Graduate, with advice for living a full life after leaving the workforce; Living a Richer Life by Design, about accumulating wealth with the goal of giving it back to society; and Power of the Purse, which is about women in finance. Another DeForge creation, called impacteffectnetwork.com, provides a forum for podcasts concerning current events viewed through the lens of conscious leadership. A third network, still in the testing phase, would provide a marketplace somewhat like a town’s Chamber of Commerce.
Collective niche networks like these will become a trend because they help listeners find what they’re seeking in an increasingly overcrowded world of podcasts, DeForge predicts. But none of this happens without the right technical foundation, she adds. The tech side Produce Your Podcast operates with a “virtual team” scattered across the country that’s not only appropriate for the COVID-19 era, but also convenient for podcasters interviewing guests located just about anywhere. Podcasters can meet with the company’s lab engineers in studio spaces in a number of cities where staffers are based, or they can do everything remotely and still produce broadcast-quality sound, DeForge says. The company creates those high-quality remote conversations with a recording service it pioneered and that DeForge considers unusual—perhaps one of a kind. “We have a technology where we record hosts and guests remotely anywhere in the world by connecting them with a live engineer,” she says. “I’ve spent five years trying to help people understand that they don’t have to leave their house,” she maintains. “They still have the lab engineer, which I think makes people feel so much more comfortable, because they’re navigating all the technology on their behalf.” And there’s no room in the industry for that kind of worry, according to DeForge. “If you’re not having fun doing it or it becomes overwhelming,” she says, “you’re not going to keep podcasting.”
There’s no room for worry in podcasting. If it’s not fun, you’re not going to keep doing it.
POWER TIPS FOR NEW PODCASTERS Invest in the best equipment, recording and editing, the budget will bear. No matter how good the content is, if it hurts to listen to it then people will just stop. tay consistent. To build an S audience by delivering podcasts at the appointed time on the appointed day. ake sure the host and guest M have the same make and model of microphone. Otherwise, it can sound terrible. Maintain a website and post the podcasts there. Don’t wait until the day of the podcast to promote it. Build a database of listeners or viewers and remind them of the show three to five times a week. Use social media and email to prod the public into listening or watching. Realize that LinkedIn is the most underrated method of contacting listeners and viewers. ake guest appearances on other M people’s podcasts to pierce the awareness of potential audience members. Don’t give up. —Traci DeForge
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High Fiverr
THE FUTURE OF WORK
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Fiverr connects freelancers and gigs with Amazon-like efficiency, one of the reasons so many new freelancers aren’t looking back. By Mike Reddy
mid a harsh economic landscape, where Covid19 jeopardizes lives and livelihoods around the world, freelancing has emerged as a muchneeded beacon of hope for skilled workers. In the United States alone, tens of millions of people are without work following what the World Bank forecasts will go down in history as the deepest global recession since World War II. Nearly 32 million people claimed unemployment benefits for the week ending July 4, according to the Department of Labor. That number was less than two million for the comparable week in 2019.
Still, many refuse to accept the newfound hardships, instead turning to freelancing sites, such as Upwork, freelancer.com and Fiverr, to put their skills and talents to work. Freelancer.com reported an increase in the number of jobs posted between Q1 and Q2 of 2020 to the tune of over 25%. An Upwork study indicated an estimated 50% rise in freelancer sign-ups since the pandemic hit. Fiverr, too, set record numbers in past months for freelancers joining its platform and creating new gigs. But the growing workforce of freelancers predates the pandemic. According to Upwork and Freelancers Union’s sixth annual Freelancing
Brent Messenger, Fiverr’s vice president of public policy and community engagement
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in America study, the share of fulltime freelancers was 17% in 2014, and by 2019 it had grown to 28%. A total of 57 million Americans freelanced in 2019, or 35% of the U.S. workforce. Those who have spent a considerable amount of time freelancing know that no two platforms are the same, each with its own advantages and drawbacks. Fiverr’s approach, namely its service-as-a-product model, sets it apart from the competition in ways many users of the site, both buyers and sellers, find beneficial. “We’ve productized these services,” said Brent Messenger, vice president of public policy and community engagement at Fiverr. “And so there’s a catalog of services that you could go through, and it’s like shopping on Amazon.” Essentially, freelancers on Fiverr create listings for their services detailing exactly what they’re willing to do, how long it will take them to do it and what they charge for completing the job. Many listings feature packages or add-ons to custom tailor the services further. Unlike many other freelancer-hiring platforms, Fiverr’s bases prices on providing flat totals for completed work, as opposed to hourly rates, simplifying the process for businesses. “It’s starting with a scope of work up front, and you can work backwards from that,” Messenger told Luckbox. Structuring the platform that way makes hiring freelancers a straightforward process. Instead of posting jobs, waiting for proposals, sifting through them and ultimately negotiating with
the best applicants, business owners can search for exactly what they’re looking for, compare rates and book a gig all in the same day. For the freelancers, gone are the days of searching through job listings, applying to a handful that match their expertise and hoping they’ll be lucky enough to be selected for the gig. On Fiverr, the jobs come to them. It’s not surprising then that along with the shift to working from home came a growing shift to freelancing, a business model built upon working remotely, customizing rates and choosing to take on as much or as little work as one’s schedule allows. While Fiverr doesn’t track the number of part-time versus full-time workers, anecdotal evidence suggests it’s more than possible to earn a competitive full-time wage freelancing. “We can see in our data that there are many people on the marketplace who’ve earned more than a million dollars,” Messenger said. “There are people who start a gig, and six months later they’ve earned $100,000—and there’s just a lot of volume.” But with so many workers flocking to freelancing sites in recent months, one can’t help but wonder if market saturation is becoming an issue. Is there room for new freelancers to find success on a platform like Fiverr? According to Messenger, the number of buyers has been growing along with the number of sellers. “As companies were experiencing the shelter-in-place, they still continued to have needs, and frankly, many more businesses are finding that they have needs that they didn’t know,” he said. “It’s been
a pretty balanced growth process.” Messenger added that as new people join the platform, Fiverr tracks their behavior to see if it differs from other cohorts on the site. Buyers who came on during the early stages of the pandemic, he said, have been behaving in the same ways as previous buyers in terms of site visits, repeat buying patterns and the amount of time between visits. Of course, making the shift from traditional nine-to-five work to freelancing can be a daunting undertaking, especially for those with no prior experience in the freelance market. For potential freelancers looking to get started, Messenger recommended exploring the site and taking a look at the opportunities. “People don’t realize how many of their side talents are being monetized
Fiverr’s Podcast Called Ninetwentynine, because each episode runs exactly nine minutes and 29 seconds, Fiverr’s podcast is geared toward entrepreneurs and businesspeople looking to learn from others who have found success in their respective fields. Each episode features a different guest, or guests, and explores a rule they abide by for their success. From “Hire the right people” to “Be kind to yourself,” the rules may seem straightforward, but take it from the guests, that doesn’t make them any less important. The entire first season of the show, comprising 15 episodes, is available for listening now.
“People don’t realize how many of their side talents are being monetized by other people on Fiverr.” august–october 2020 | luckbox
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A Fiverr Buyer In 2014, Georgie-Ann Getton-McKoy needed a logo for one of her early startups. She liked the work of a designer she followed on Instagram, and when she reached out to commission him, he asked her to book the gig on Fiverr. That was Getton-McKoy’s introduction to the platform she says has seen her through her career. Getton-McKoy, 25, of Freeport, N.Y., works as a virtual event strategist at GSD Solutions, helping clients produce virtual events and build out virtual content. On any given day, she could be building landing pages, managing graphic design work, creating social media posts or executing virtual events. “Before Fiverr, I was doing all these tasks on my own and just kind of figuring it out,” she told Luckbox. “But Fiverr was the first place I hired external freelancers.” Now she finds herself using the platform at least once or twice a month, oftentimes more when steady client work is coming in. She said her favorite part of booking gigs on Fiverr is how easy the whole process is. “It’s very clear and concise, from the pricing model and structure to how you reach out to folks that are freelancers on the platform,” Getton-McKoy said. “You can see the reviews they had, you can see feedback they’ve received, samples—so it’s just a really clear, easy one place to handle everything.” Besides hiring freelancers for her business, GettonMcKoy has used the platform to format her book, The Art of Getting Sh*t Done. “That was a really powerful moment for me because that was the final stage in self-publishing,” she said. “It just really felt like somebody else took my work that I’ve put so many years and so much time into and just really added the icing to the cake.” Getton-McKoy said that for established businesses or entrepreneurs just starting out, the Fiverr platform can grow along with them. “I’m able to go in and work with somebody and then build out relationships with the people that are working there,” she said. “So it’s just been a great experience from early stage to now using Fiverr folks.”
30
A Fiverr Seller When Billy McIntyre graduated from college, he found himself at a crossroads. His degree was in English literature and classics, and he was working for a major life insurance carrier—a job he wasn’t too enthused about continuing. “It was kind of the situation where, ‘OK, now I can go back and I can go get my Ph.D., or I can figure something else out,’ ” he told Luckbox. “Fiverr was something else.” Based in Las Vegas, 30-year-old McIntyre has been doing freelance writing work on Fiverr since 2015. In that time, he’s earned over $300,000 selling his services, which he says accounts for well over 95% of his income. Having completed over 10,000 orders, McIntyre, who has “Pro Verified” status under the username Bingeclock, has explored many different genres of writing. From articles to whitepapers, short fiction to ghostwriting clients’ memoirs, “You name it, I’ve written it,” he said. “Writing was always the end goal,” McIntyre added. “That’s my passion—that’s what I love to do—so it all really worked out very quickly.” He fulfills between 30 and 40 writing gigs a week, each paying between $90 and $1,000, depending on what the job entails. Having fulfilled orders in many different countries, McIntyre said he likes that Fiverr caters to a global community. “It’s making the big world a smaller place,” he said. “I think that’s the wonder of the internet: It’s a democratizing force, and I think that Fiverr is leading the way in that sense.” For new freelancers looking for advice, McIntyre stressed the importance of jumping into it and loving their work. “The No. 1 thing that people should realize if they want to get into creative work, freelancing, anything like that, is that you are working with people on something that is their heart, this is what they love,” he said. “If I’m working with you, and you’re having me write something about it, that is my passion. As long as you and I are working together on it, then that’s my passion.” The resilience of the platform, he added, is all the more reason for would-be freelancers on the fence to give Fiverr a shot. “It can be there for people when the old ways of doing things are not necessarily working out,” he said. “It’s worth people getting involved in it— it’s worth people supporting it because I think it’s the way of the future.”
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by other people on Fiverr,” he said. “There are thousands of things being done, and I know for sure, it’s almost like everyone I know has a skill that could be sold.” Secondly, and probably more importantly, he added, is taking full advantage of the platform’s onboarding training. “Not everyone takes advantage of it, but there’s a training program that’s available that shows you exactly what you should do,” Messenger said. “It even gets into the details of the advantages of using headshots, what kinds of graphics you should use, how you should craft your descriptions of your services and all the details that would set you up for success.” As the shift to freelancing continues, freelancers willing to do everything in their power to succeed will set themselves apart. As with any job market, competition on Fiverr—and other freelancing sites—exists on a spectrum. For those seriously considering freelancing, Messenger offered the following parting wisdom: “Be prepared to be responsive— it’s really important. It’s like a lot of other gig platforms: You want to respond as quickly as you can, you want to have clear communication, you want to be friendly. Write with a smile on your face when you’re responding to things because it really comes through.”
“During the pandemic, businesses are finding they have needs that they didn’t know.”
Fiverr’s Options After the initial shock of the coronavirus smashed the equity markets in February and March, sending them crashing and putting tens of millions of people out of work, the quarantine economy that followed provided obvious benefits to stocks that leaned toward the internet, such as Amazon (AMZN), Facebook (FB) and Apple (AAPL), to name a few. But while some of those stocks are higher now compared with before the coronavirus, none has yet matched the performance of Fiverr (FVRR). After its IPO in June 2019, Fiverr noodled around the 20 handle until early 2020. Then, when people realized they could monetize their time and talents while staying home through Fiverr’s platform, the stock surged from $22.94 on April 3 to $80.60 on July 28, an increase of over 250% in less than four months. In statistical terms, that rally was the equivalent of 4.67 standard deviations, based on Fiverr’s implied volatility on April 3. Looking forward from April, that massive rally would have had a teeny-tiny probability of happening, on the order of 1.5e-6. But Fiverr managed to pull it off. The question now is where it will go from here. While it has had a big run up, the past is not prologue when it comes to stocks. It could continue to rally or drop back down. Fiverr’s options can offer a clue about what the market might be thinking. Looking at out-of-the-money calls and puts in the October 2020 and January 2021 expirations, calls are trading over the value of equidistant out-of-the-money puts. That means the market sees more risk to the upside in Fiverr. That’s somewhat unusual in equity markets, which usually fear a big drop in price rather than a big rally. That’s not to say Fiverr will keep its rally going, but the options markets are indicating it might happen. —Tom Preston
Higher Fiverr Fiverr’s (FVRR) stock price grew more than 250% from early April to early August, months after the onset of stay-at-home orders due to the pandemic. 90
In April, the market underestimated the severity of the current increase
60
Covid-19 creates more opportunity to work from home
IPO in June 2019
Early August price action suggested an additional rally
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0 Jul 2019
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Nov 2019
Jan 2020
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L U X U R Y P E R F O R M A N C E P A S S I O N
Custom Outdoor Kitchens by Kalamazoo
888 340 4361
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trends life, luxury & the pursuit of happiness
RECORD HIGH
Vinyl’s Revival: A Decade of Growth A seemingly endless amount of music is just a smartphone tap away, but that isn’t stopping a growing demographic of music-lovers from listening the old-fashioned way: laying some vinyl down on a turntable
By Mike Reddy
PHOTOGRAPH: COURTESY OF DUSTY GROOVE
W
hat do vinyl records and craft beer have in common? “Nothing” may be the instinctive response, but Rick Wojcik, owner of what Rolling Stone deemed the country’s thirdbest record store in 2010, says the two share more similarities than one might think. “Vinyl follows the beer business,” Wojcik told Luckbox. “In the early 20th century, Chicago had a bunch of local brewers. They didn’t call themselves craft brewers, but they were guys who did a good job. It was the same thing with vinyl pressing plants.” Both endured steep declines as the century wore on. The United States had 857 breweries in 1941, and that number shrank each consecutive year until 1978, when it hit its lowest point since prohibition at only 89 breweries, according to Brewers Association data. The number of breweries would stay under 1,000 until 1996.
Records and CDs fill Chicago’s Dusty Groove record store.
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trends
Highest-value record at Dusty Groove: Black Sabbath, Black Sabbath $999 Described as in “Near Mint Minus” condition because its cover is lightly bumped at the bottom right corner, this 1970 LP is the highest-priced record on Dusty Groove’s website as of press time. Recorded in 1969 and released June 1, 1970 in the U.S., Black Sabbath is the debut studio album from the English rock band of the same name. Upon release, the album hit No. 23 on the Billboard 200. The band was inducted into the Rock and Roll Hall of Fame in 2006. Source: dustygroove.com
TOP-SELLING VINYL ALBUMS OF THE DECADE 34
10
Sales volume for LPs and EPs decreased every year from 1981 to 1993. In 1980, vinyl accounted for close to half of all recorded music sales—making it by far the most-popular medium at the time. But in 2000 it scored only 0.2% of sales, left in the dust by the then-dominant CD, according to the Recording Industry Association of America (RIAA). Still, it doesn’t take a keen eye to pick up on the surging popularity of microbreweries and vinyl records in recent years. Grocery store beer aisles have been allocating more space to craft brews—in some cases designating entire sections for them. Meanwhile, it’s increasingly commonplace to find records for sale in bookstores and department stores across the country. Sales numbers affirm the anecdotal observations. Overall U.S. beer sales by volume were down 2% in 2019, but craft brewer sales volume was up 4%, now accounting for 13.6% of the U.S. beer market by volume. The number of U.S. breweries is larger now than ever before, at 8,386 in 2019, according to the Brewers Association. In the same year, LP and EP sales volume hit 19.1 million units, an increase of 14.6% over 2018, according to the RIAA. What at its lowest points made up a mere 0.1% of all recorded music revenue now accounts for 4.5%. Craft beer aside, what’s powering the vinyl revival? With seemingly infinite libraries of on-demand music just a cell phone tap away, thanks to subscription services and
Born to Die, Lana Del Rey (283,000)
(304,000)
7
9
streaming, why would anyone go out of the way to use a turntable? Vinyl enthusiasts may point to the novelty of large album artwork, the innate collectability of records or the warm, beloved crackle that can be heard when playing them, but Wojcik chalks it up to something simpler. “People are willing to pay for quality,” he said, adding that the quality of vinyl has long been on the rise. “It’s just stunning. The effort that’s gone into the cover art, the production, the cardboard—better than even a record from the ‘60s— and that’s a real tribute to the quality these guys are bringing to it.” And if anyone should know about the trends of the industry, it’s Wojcik. He’s been working in the music business since the late ‘80s, when sales volume for the LP and EP formats underwent some of their steepest declines. He had experience under his belt as a DJ and a part-time record store worker before co-founding his own record store, Dusty Groove, with JP Schauer in 1996. Dusty Groove started as an online-
“People are willing to pay for quality, and the quality of vinyl records has long been on the rise.”
Kind of Blue, Miles Davis (286,000)
Sgt. Pepper’s Lonely Hearts Club Band, The Beatles (313,000)
6
5
Back to Black, Amy Winehouse (351,000)
3
Guardians of the Galaxy: Awesome Mix Vol. 1, Official Soundtrack (367,000)
Pink Floyd (376,000)
1
4
8
only part-time hobby but became a full-time operation in only four months. By the end of 2001, it had an in-person retail presence open seven days a week in Chicago’s Wicker Park neighborhood. In addition to being named the third best record store in the country by Rolling Stone, the store’s been recognized by The Wall Street Journal, Time and Reader’s Digest. It was also the subject of the 2019 documentary Dusty Groove: The Sound of Transition. “One of the things people would say to me 20 years ago was, ‘Aren’t you afraid? It’s all digital music— nobody pays for anything,’ ” Wojcik said. “And I would say, ‘Look, radio has sucked for a long time. I love digital music because this is how all these kids are getting turned on to music. When they find something they love, they’ll be willing to spend money on it.’ And the years have proven us right.” Young people, including high school students stopping by the store after school, make up one of Dusty Groove’s largest emerging customer demographics in the last five years, Wojcik said. The store makes roughly $3 million in gross sales a year. Wojcik attributes the store’s survival and growth to its ability to attract customers from all over the world and from all age groups, races and musical interests. Customers buying jazz feel just as comfortable in the store as someone buying hip hop, he said. And despite its principal reputation as a record store, Dusty Groove offers a wide selec-
Rumours, Fleetwood Mac
Thriller, Michael Jackson (334,000)
Legend, Bob Marley and the Wailers (364,000)
Abbey Road, The Beatles (558,000)
2
The Dark Side of the Moon,
Source: Nielsen Music’s 2019 Year-End Music Report
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trends
TOP-SELLING VINYL ALBUMS OF 2019
10 7
U.S. recorded music revenues by format From 1973 to 2019, the formats consumers have chosen for their music have changed significantly. One standout: LPs and EPs are making a comeback. $14,000
LP/EP Vinyl Single 8-Track Cassette CD Download Album Download Single Paid Subscription On-Demand Streaming Limited Tier Paid Subscription
$12,000
$10,000 VALUE (MILLIONS)
$8,000
$6,000
$4,000
$2,000
1
2018
2013
2008
2003
1998
LP/EP 497.6
Source: Recording Industry Association of America (RIAA)
Vinyl Single 6.8
Some music formats, including cassette singles, CD singles, downloaded music videos, DVD audio and kiosks, are not included.
CD 614.5 Download Album 394.5 Download Single 414.8 Paid Subscription 5,900 On-Demand Streaming 908.1 Limited Tier Paid 829.5 Subscription
9
Legend, Bob Marley and the Wailers (84,000) 6
3
Greatest Hits 1, Queen (139,000)
Abbey Road, The Beatles (246,000)
8
Thriller, Michael Jackson (88,000)
Sounds of Summer: The Very Best of The Beach Boys, The Beach Boys
Bohemian Rhapsody: The Original Soundtrack, Queen (108,000)
Official Soundtrack (123,000) (176,000)
1993
Paid subscriptions accounted for more than half of all music revenue in 2019, but LPs and EPs generated more revenue than downloaded albums or downloaded singles alone. Revenues in millions of dollars
The Dark Side of the Moon, Pink Floyd (92,000) 5
1988
2019 Recorded music revenues by format
Rumours, Fleetwood Mac (78,000)
(107,000)
1983
1978
$0 1973
tion of CDs, representing half of its business. “We sell more jazz than anything else,” Wojcik said. “Second is probably soul music, and third is rock, and we didn’t even sell much rock music until about a decade ago, when people just kept saying, ‘Please, we need to sell these records and there’s not a lot of record stores left around.’ ” An integral part of the business is buying used records from customers looking to part with their collections, make some extra money—and space—or liquidate a relative’s estate. With 31% of Americans willing to pay for music on vinyl, according to a 2019 YouGov survey, one pressing question is “What makes a record valuable?” “Condition is No. 1,” Wojcik said. “No. 2 is something that’s really unfamiliar to you.” Customers are quick to mention their Beatles and Elvis records, he noted, but the often-overlooked, more-obscure albums are the ones most likely to fetch higher resale prices. With the vinyl revival apparently in full swing, one can’t help but wonder if now’s the time to start building a collection in hopes of one day selling it for a profit. Wojcik said people even try to come up with algorithms for investing in records. “That’s the worst idea I’ve ever heard of,” he adds. Instead, he offered this parting advice: “If you follow your taste and invest in something you love, you’ll enjoy it while you have it. That’s always the best art investment.”
2
4
Guardians of the Galaxy: Awesome Mix Vol. 1,
When We All Fall Asleep, Where Do We Go?, Billie Eilish
Source: Nielsen Music’s 2019 Year-End Music Report
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THE NORMAL DEVIATE
Stocks That Rock
6ix9ine performs at the Weekend Festival in Helsinki, Finland.
Want to make a living from music? Put down the guitar and start picking music-related equities. By Tom Preston
Gooba at a disadvantage. Billboard defended itself with a thorough explanation of its methodology, and Gooba remained at No. 3. Hard to chart Now, Billboard seems as honest as the day is long, and I don’t doubt their sincerity in the Gooba affair or their Hot 100. But look at the Hot 100 for a few weeks, and it becomes apparent how hard it is to crack into it, especially for a smaller act that doesn’t have the marketing muscle of a major label. For instance, a recent Billboard Hot 100 had only six new songs that week, and not one was in the Top 25. Most were in the fourth quartile. (That’s 75 to 100 for philosophy majors). On top of that, the songs in the Top 10 had been on the Hot 100 for an average of 20 weeks, with all of them in the first quartile between 1 and 25. That low turnover in the list of America’s favorite songs indicates how hard it is to make the list, let alone make it to the top and reap the accompanying publicity. Maybe some outside influence tries to game the Hot 100. Music is generational to a large degree, and most of the Hot 100 songs are popular with the sub-25 crowd. Acts that
aren’t familiar to older listeners don’t generate a large enough audience to chart, regardless of how good their music is. So, any outside influence is likely to help determine the position within the Hot 100, not get an unknown act onto the list. That relative directionless activity and the lack of surprises in the Hot 100 (except for 6ix9ine) may remind traders of the nature of stock and index prices. Yes, big price changes occur once in a while, but more often than not the S&P 500, for example, trades in a narrow range with a slow upward drift. And just like the Hot 100, the list of companies in the S&P 500 rarely changes. That first point is why, over time, short option strategies like short strangles, iron condors and verticals tend to make money. They take advantage of a stock or index
A recent Billboard Hot 100 had only six new songs that week, and not one was in the Top 25. 36
“You’re mad I’m back, big mad He’s mad, she’s mad, big sad Haha, don’t care, stay mad” —Gooba, 6ix9ine (2020) PHOTOGRAPH: HEIKKI WICHMANN / SHUTTERSTOCK.COM
A
s AC/DC said, it’s a long way to the top if you want to rock and roll. And to measure the top in music, even if it isn’t rock ‘n’ roll, rely on the Billboard Hot 100. The chart, established in 1958, serves as the benchmark of a song’s popularity. Make it there, and you’ve arrived. Billboard determines its weekly Hot 100 by tracking a song’s sales, streaming activity and radio airplay. Over the years, the methodology has changed—with different ratios of airplay to sales, for example—to try to capture the songs’ true popularity. But it’s not without controversy. A couple of months ago, 24-yearold rapper 6ix9ine complained that his song Gooba should rank No. 1 instead of occupying third place on the Hot 100 chart behind the Ariana Grande/Justin Bieber collab Stuck With U at No. 1 and Doja Cat feat. Nicki Minaj and their Say So at No. 2. (Full disclosure: 6ix9ine’s Gooba is played about 20 times more often than those other two songs in this trader’s playlist.) The argument 6ix9ine made for deserving the No. 1 spot centered on discounted streaming numbers and a last-minute possibly engineered spike in sales that allegedly put
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moving around a lot less than the market thinks it might.
PHOTOGRAPH: USA TODAY NETWORK VIA REUTERS
Music stocks Most dreams of musical stardom are crushed in a middle school band, so it’s more likely to find success in trading options. Let’s combine the two passions and look at some stocks with exposure to the music business. Apple (AAPL) and Google (GOOGL), via YouTube, are the two biggest companies that have streaming music services, but other stocks have more pure exposure. Three companies—Sirius XM (SIRI), Spotify (SPOT) and iHeartRadio (IHRT)—are in the business of streaming music and news. Spotify has been the heavyweight of the three, but Sirius bought the music streaming service Pandora two years ago and began to edge into Spotify’s market. That hasn’t stopped Spotify from dramatically outperforming Sirius and iHeartRadio over the past few months, which has helped give Spotify a market cap two times bigger than Sirius XM’s and 100 times bigger than iHeartRadio’s. From a trading standpoint, Spotify’s options are more attractive for two reasons. First, its $260 stock price creates larger options prices and more strike prices than Sirius XM at $6 and iHeartRadio at $7.
Presley in 1971
The linear relationship between a stock’s price and its options price means the price of a 90 strike put on a $100 stock will be 10 times the price of a nine strike put on a $10 stock, with days to expiration and implied volatility the same. Second, Spotify’s options are more actively traded and are more liquid. Comparing Sirius XM to Spotify, Sirius’s $6 stock price means its five and seven strikes are 16.6% away, which makes them far OTM (out of the money). That’s why the short 5/7 strangle with 45 days to expiration generates only $.10 of credit. Spotify’s strikes are 10 points apart, which is only about 3.5% of its price. That creates options much closer to the stock price that have much higher prices. For example, the short 250/260 strangle with 45 days to expiration generates $37 of credit. That higher credit is also due to Spotify’s higher implied volatility, which has a greater impact on its bigger options prices than it would on Sirius XM’s lower options prices. That’s why Spotify’s options give traders more to work with. To take advantage of Spotify’s options, traders could choose a short put vertical if they were bullish or a short call vertical if they were bearish. For a bullish trade, the short 230/240 put vertical with
Stock and options trades aren’t guaranteed to make money, but their probability of success is higher than the chances of a garage band making it to the Hot 100. 45 days to expiration collects a $3 credit and has a 70% probability of profit at expiration. For a bearish trade, the short 280/290 call vertical with 45 days to expiration also collects a $3 credit and has a 70% probability of profit at expiration. To calculate the probability that a short vertical will make at least $.01 of profit at expiration, take its max loss and divide it by the width of the strikes. For both the short put vertical and short call vertical, the credits were $3 and the width of the strikes is $10. Their max loss is $10 - $3, or $7. Divide $7 by $10 to get a 70% probability of profit. These trades aren’t guaranteed to make money, but their probability of success is higher than the chances of a garage band making it to the Hot 100. Do those kids a favor and give them a copy of Luckbox. Tom Preston, Luckbox contributing editor, is the purveyor of all things probabilitybased and the poster boy for a standard normal deviate.
These songs topped the Billboard Hot 100 on Nov. 1, 1969 1
Suspicious Minds Elvis Presley
6
Hot Fun in the Summertime Sly & The Family Stone
2
Wedding Bell Blues The 5th Dimension
7
Little Woman Bobby Sherman
3
Sugar, Sugar The Archies
8
Jean Oliver
4
5
I Can’t Get Next to You The Temptations
9
Baby It’s You Smith
10
Tracy The Cuff Links
Come Together/ Something The Beatles
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THE POLITICAL TRADE
Hedging Political Bets Trading in political markets closely resembles trading in financial markets: Do the homework, make an educated decision and hedge. By Derek Phillips
“Sure things” aren’t always so sure, and that lesson rings true to political traders’ ears. Fortunes were lost betting big on Hillary Clinton in the 2016 election. Now, in 2020, Joe Biden leads nearly every poll. But before betting the farm on Biden, consider the hedging advice of this prediction market super-trader.
T
rading in the political prediction markets seems a lot like trading in the capital markets: Research, diversification and hedging pay off for anyone who wants to make money safely. In political prediction market trading—where traders wager real money on specific political outcomes—noise from social media, political commentary and the opinions of friends and family can seem unavoidable and can drastically change a trader’s strategy or decisions. Here’s one example of how things could go wrong: A trader views the election as all but over. He believes Biden will win by eight to 10 points, the Democrats will pick up at least three seats in the Senate and they’ll expand their lead in the House. Comfortable with the polling and anecdata he’s seen, he wants to put as much money on that prediction as he can. That brings him to the market forecasting whether Democrats will make a clean sweep of the White House, Senate and House. “Yes” shares trade only a few cents less than they do in the market for Democrats to win the presidency alone. Although the trader knows
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of other ways to make the same bet more cheaply, he’s already maxed out in those positions. Besides, even though this market is overpriced, it still feels like a really good price for a “sure thing.” After clicking a few buttons, his total investment in the Democrats is now up to about $10,000. But that’s when the regret sets in. Looking at the calendar, he sees several months left in this election cycle, which can feel like a lifetime in politics. Memories of how wrong things went in 2016 flood back into his mind. He remembers that even runaway elections tend to tighten as voting nears. Traders in this position are not alone. Fortunately, they can take action to calm their uneasy feelings without locking themselves out of their predictit.org accounts until November or continuing to suffer through the ups and downs of a volatile campaign season. Insuring such a bet will take some work—and a little more capital—but if done correctly, it can drastically reduce exposure, guarantee fewer sleepless nights and possibly return some premium in November. Here are some things to keep
Joe Biden takes a picture with supporters in Los Angeles after winning big on Super Tuesday.
in mind for betting against swing shares: 1. If Donald Trump’s position improves before November, a ripple effect will appear in the outlook for Republicans in nearly every market. For instance, if Trump’s approval or head-to-head polling goes up nationally, that means he has a better chance of winning North Carolina, which means Republican Sen. Thom Tillis has a better shot at holding on. This affects House races and gubernatorial races, as well as delegate and popular vote markets, just to name a few examples.
Want insight into wagering on political prediction markets? Check out The Political Trade wherever you listen to podcasts. Weekly episodes feature top prediction market traders and political insiders, including Anthony Scaramucci and James Carville.
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PHOTOGRAPHS: (BIDEN) REUTERS/KYLE GRILLOT/FILE PHOTO; (CAPITOL BUILDING) GRAEME SLOAN/SIPA USA
2. Some markets are simply bottomed out. Traders who have been on predictit.org for a while know there’s a limit to how low new information can push prices in certain markets. In the 2017 French presidential election, for instance, Emmanuel Macron consistently led the polls by about 20 points, yet some traders were still willing to pay north of 25¢ for his opponent until the minute before Macron won by 32 points. Overconfidence in certain Republican positions will not go away, no matter what happens between now and November. 3. Think of insurance as price control instead of as an additional bet to offset losses. That doesn’t mean roll the dice on a bunch of longshot Republican positions in addition to Democratic holdings. Holding through election night would mean that a good, but not amazing, night for Republicans would spell disaster. Having insurance provides flexibility—and an escape option—in the days before the election. If done correctly, portfolio value lost to price declines in Democratic positions should be roughly offset by gains in Republican positions, which can be sold if things get too uncomfortable. Remember, too, that the inverse should not be true: If Democratic polling continues to improve, insurance bets should not lose much value for the reason listed in point No. 2. Keeping in mind that a rising Trump helps all Republicans, that the pricing can’t get much worse on certain Republican positions, and that Democratic slippage should result in Republican solidarity, traders can choose among hundreds of markets that offer varying degrees of low-risk/high-upside insurance. The challenge is finding the ones that fit together at the best price. Derek Phillips began trading political futures professionally during the 2016 election, turning $400 into $400,000 in four years. Phillips is a recurring guest on The Political Trade podcast. @dmpfrompi
DEREK PHILLIPS’ BEST BETS Which party will control the House after the 2020 election? Buy YES on Republican as a hedge It may require patience to get in on this, but the floor for the Republican contract is about 13¢. It shouldn’t be much below that on election day, no matter what happens, so traders have a lot of upside to the bet. If Trump pulls the race close to 50/50, this contract should trade around 25¢, so traders who max at 13¢ could cover about $650 in losses. If Trump becomes the favorite, it could increase to 40¢ here.
What will be the popular vote margin in the 2020 presidential election? Buy YES on any contract for 1¢ Get anything here at 1¢. None of these brackets will be dead before election night, so traders won’t have a problem selling at cost if they want to. If there’s any kind of fluctuation, explicable or otherwise, traders are guaranteed to at least double their money. Be willing to pay 2¢ for some of the closer brackets and 5¢ for that first Republican bracket, which will see the sharpest rise if confidence starts to come back to Trump.
Who will win the 2020 U.S. presidential election? Buy NO on Trump and Biden. Buy “No” on both Trump and Biden as catastrophe insurance. Who knows how things will play out if something happens to Trump or Biden, but the free max payout on one position can cover the calamity going on elsewhere on the website. If nothing crazy happens to either, a trader isn’t out anything—maybe some fees, provided he paid less than a dollar for the two combined. Traders can probably cover the fees by tacking on the Libertarian and Green Party candidates at some point; as well as Hillary Clinton, who will probably still be there.
Who will control the House after 2020? Democratic
86¢ 1¢ Republican
16¢
1¢
986K Shares Traded
Popular Vote margin of victory? Dems, 10.5% or more
20¢ 2¢
Dems by 9.0%–10.5%
14¢
1¢
4.1M Shares Traded
2020 presidential election winner? Joe Biden
60¢ 2¢ Donald Trump
41¢
2¢
89.9M Shares Traded
Source: predictit.org
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BOOK VALUE
The Luckbox Bookshelf New and not-so-new books that captured our attention this month Utopia Avenue By David Mitchell
David Mitchell developed a cult following in 2004 with his elaborate but unconventional book Cloud Atlas. Unsurprisingly, critical reactions were mixed. The Daily Telegraph dissed Cloud Atlas because it “spends half its time wanting to be The Simpsons and the other half The Bible.” Meanwhile, The Guardian ranked it No. 9 on its list of the 100 best books of the 21st century. Now, Mitchell’s latest has met similar inconsistent criticism. But because the creed of the Luckbox Bookshelf is “damn the critics, decide for yourself,” the eagerly awaited Utopia Avenue provides a great place to begin. The story centers on the fictional ascent of the eponymous rock and roll band against the backdrop of the tumultuous swinging ‘60s. It begins in London as a Brian Epsteinlike manager assembles and curates the four band members in a Simon Cowellish manner. It ends in tragedy following 1967’s Summer of Love in San Francisco. The novel’s six parts each represent one side of the band’s three released LPs. Each chapter recalls the moments that inspired the albums’ tracks. The band’s journey is replete with the expected sex, drugs and rock ‘n’ roll, and the narrative hinges on creative egos, mercenary managers, band leadership
Far too often, book reviews drive away readers. But reviews present just one stranger’s view, and taking them to heart leaves great books undiscovered. That’s why The Luckbox Bookshelf offers profiles instead of reviews. Don’t look to these pages for opinions. Think of Bookshelf as a place to discover books that educate, entertain and challenge entrenched beliefs. Amazon rankings are subject to change. Have a suggestion for bookshelf? Email tips@luckboxmagazine.com.
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struggles and record-label roadblocks. Throughout the book, Mitchell interlaces cameo appearances by real-life celebrities. The band encounters Peter Sellers, Michael Caine, Keith Moon, Brian Jones, Frank Zappa, Leonard Cohen, Joni Mitchell, Jerry Garcia, David Bowie, Allen Ginsberg, Princess Margaret and many more—and often learns much about the stars’ relevance to the era. As with Cloud Atlas, Mitchell is experimenting with literary devices and structure, making the reader his lab rat. Sometimes the format seems forced. Mitchell’s 574-page tome provides a selfindulgent, yet faithfully executed homage to an era he obviously adores, without taking the reader for granted. —Jeff Joseph New York Times Book Review Editors’ Choice Amazon Best Seller Ranking #20 Dystopian Fiction
Trust Me, I’m Lying: Confessions of a Media Manipulator By Ryan Holiday
“Fake news” can be a pretty divisive term. Press advocates are quick to downplay the issue’s scope or even its existence in mainstream media, while media critics are just as quick to ascribe the label to any news they happen to dislike. Either extreme can result in perilous consequences, but if Ryan Holiday’s Trust Me, I’m Lying: Confessions of a Media Manipulator proves anything, it’s that fake news certainly exists, and it’s not too difficult to orchestrate—particularly online. Originally published in 2012, seven years before “fake news” would make its way into the Oxford English Dictionary, Trust Me, I’m Lying details Holiday’s exploits as a marketer and media strategist. One such experience came about while working on a campaign for the comedy film
I Hope They Serve Beer in Hell. Holiday recounts defacing billboards for the film— billboards he designed and paid for—to manufacture a pseudo controversy for media buzz. And it worked. A few pseudonymous emails later and the story had been picked up by two sites, which in turn made it easier to spread to bigger and bigger sites until, in Holiday’s words, “Rejections from late-night television, newspaper interviews and morning radio turned into callbacks.” It’s a process Holiday dubbed “trading up the chain,” and it’s one of several media manipulation techniques covered in the book. “The economics of the internet created a twisted set of incentives that make traffic more important—and more profitable— than the truth. With the mass media— and today, mass culture—relying on the web for the next big thing, it is a set of incentives with massive implications.” Trust Me, I’m Lying seems as relevant today as when first published—perhaps even more so. It’s a heartbreaking reality check affirming the dangers of believing everything read online, even from wellknown, reputable sources. There’s a reason media professors assign this book to students, and media outlets to new hires. Readers will be more cynical after reading it, but they’ll be happy they are. —Mike Reddy Dot Con: The Art of Scamming a Scammer By James Veitch
For most, the spam folder of an email inbox is largely uncharted territory, only occasionally traversed on the off chance an important, highly anticipated email wound up there by mistake.
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PHOTOGRAPH: GARRETT ROODBERGEN
trends
Still, it isn’t very taxing to sift through the fast-acting weight-loss solutions, lifechanging sweepstakes winnings and generous offers by local singles eager to hook up—after all, nobody takes spam email very seriously. Except James Veitch. Veitch’s 2015 TED talk “This is what happens when you reply to spam email” ranks among the 25 mostpopular TED talks of all time, having racked up well over 60 million views. In the talk, Veitch describes two instances where he, as the talk’s title implies, replied to spam emails, albeit with a witty idea: Rather than accost or insult the would-be scammers, Veitch played along with them, making himself seem like the perfect mark. “Hello James Veitch,” one scammer’s email starts. “I have an interesting business proposal I want to share with you.” “Your email intrigues me,” Veitch replied. A back-and-forth ensued that ramped up in humorous ridiculousness with each email exchanged, the scammer going to greater and greater lengths for the easy payday that would never come. The only downside is that the roughly 10-minute talk whets one’s appetite for more email exchanges while only delving into two. That is, until now. Nearly five years later, Dot Con: The Art of Scamming a Scammer offers nearly 200 pages of email messages, fashioned as screenshots, delivering the long-anticipated return of Veitch’s online antics. The book makes for a quick read, easily consumable in one session, but its many laugh-out-loud moments give it a lot of bang
for the buck—especially considering the likelihood of lending it to friends and family in need of a good laugh. —Mike Reddy Amazon Best Seller Ranking #1 Email Administration
I’m Your Emotional Support Animal: Navigating Our All Woke No Joke Culture By Adam Carolla
From the outset, this book pulls no punches. The jacket proclaims that Carolla—actor, comedian and podcasting legend—has returned “to take on social media, social justice warriors and a society gone to shit.” And indeed he does. Woke culture has altered the comedy landscape. Comedians lament that today’s social climate doesn’t allow discussion of certain controversial subjects—let alone jokes about them. It’s why Jerry Seinfeld, Chris Rock and Bill Maher no longer perform on campus. Dave Chappelle and Ricky Gervais are notable exceptions—and so is Carolla. In the book’s preface, Carolla comes out swinging, describing a verbal confrontation where he offended his own mother and she demanded an apology. “I don’t understand the psychology of this. Let’s say someone calls you fat. You demand an apology, and they give it to you. You’re still fat. Nothing has changed.
If you feel better after a forced apology, you must be really into dry humping and tofu because both are just as satisfying.” Triggered? Then the subsequent chapters on support animals, a meeting with Trump, testimony before Congress, victimhood, hashtag activism and the #MeToo movement will certainly offend or amuse. Arousing those emotions is Carolla’s objective—and by that standard his latest book succeeds. —Jeff Joseph Amazon Best Seller Rankings #1 American Literature Criticism #3 Political Humor
Make Noise: A Creator’s Guide to Podcasting and Great Audio Storytelling By Eric Nuzum
With nearly a million podcasts out there, how can yet another one succeed? This book might have the answer. In Make Noise, a veteran podcast creator distills a career’s worth of wisdom, advice, practical information and big-picture thinking to help podcasters stand out in a fast-growing media universe. It’s invaluable for new podcasters seeking to express and differentiate themselves as audio storytellers, entertainers or educators in a crowded and competitive marketplace. Amazon Best Seller Ranking #20 Media and Content Creation
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THE POKER TRADE
Take This Poker Quiz Poker is a game of skill. Do you have what it takes? By Jonathan Little
11 BBs - 2.1M Dealer
42
A
D
51 BBs - 10.2M Big Blind: 200K
24 BBs - 4.7M
50 BBs - 9.9M Check
8
Fold
105 BBs - 21M A
K
A
120 BBs - 24M You
The deal: At a seven-handed final table with blinds at 100,000/200,000 and a 25,000 ante, you pick up A -K in the lojack (first-toact) seat with a 24,000,000 stack. Should you: Fold Call Raise to 500,000 Raise to 700,000 Score: Fold (0 Points) Call (1) Raise to 500,000 (10) Raise to 700,000 (6)
The Poker Coaching Podcast with Jonathan Little mixes high-level poker strategy and inspirational advice. It includes audio recordings of Weekly Poker Hand, where Little reviews a poker hand in depth; A Little Coffee, which explores topics that have captured his students’ interest; and Little Poker Advice, with short, actionable tips for better poker and a better life. For a sample of the information on the podcast, check out the quiz on these pages.
A
135 BBs - 26.9M Small Blind: 100K
D
When everyone checks or folds to you, you should raise with all your playable hands, especially your best hands like A-K. Perhaps if your opponents were overly passive, there would be some merit in limping from time to time with hands that want to see a cheap flop, like 3-3 and 9 -8 . But with your best hands, you want to build the pot. A raise to between 2 big blinds and 2.5 BBs should be your default size. You do not want to raise larger because that will result in your opponent folding out many hands that you dominate and that you want to keep in the pot, such as A-9 and K-10. You raise to 500,000 and only a good, tight aggressive player with 10,400,000 calls from the big blind.
K
118 BBs - 23.5M You
The flop: Now comes A -A -8 . The pot is 1,300,000. Your opponent checks. Should you: Check Bet 400,000 Bet 700,000 Bet 1,200,000 Score: Check (2 Points) Bet 400,000 (10) Bet 700,000 (8) Bet 1,200,000 (5) As the preflop raiser, a small flop bet should be your default play on uncoordinated boards that connect well with your range. A-A-x is as uncoordinated as they come. Your range, which contains all the best A-x hands, crushes your opponent’s range, which does not contain the best A-x hands (because they would likely 3-bet preflop) and also contains a bunch of junk. While it may seem logical to bet large, that will enable your opponent to fold junk easily. When you bet small, hands that you crush like K-9 and Q -J should continue. Betting larger is a good idea only if it is obvious because of a physical tell that your opponent likes his hand and will happily pay off large bets on all three streets. You bet 400,000 and your opponent calls.
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trends A
D
A
A
A
A
A
8
D
8
2
A
D
8
48 BBs - 9.5M Check
2
Check, then ... All In 9.5M
2
K
A
116 BBs - 23.1M You
The turn: Now comes 2 , showing A -A -8 -2 . The pot is 2,100,000. Your opponent checks. Should you: Check Bet 600,000 Bet 1,300,000 Bet 2,000,000 Score: Check (0 Points) Bet 600,000 (5) Bet 1,300,000 (8) Bet 2,000,000 (10) Now it is best to apply maximum pressure on the opponent because he has a medium stack and wants to outlast the short stacks. Betting large ensures he either gets all-in on the turn or river with his aces, while also protecting your trips against a potential flush draw. The only time a large bet does not maximize value is when the opponent has exactly a marginal made hand like 4-4, but even then, he may decide your large turn bet indicates lots of bluffs in your range, which may induce him to hero-call.
(All In) Loser
J
K
106 BBs - 21M You
A
9
7
K
68 BBs - 13.6M Winner!
The decision: You bet 2,000,000. Your opponent thinks for a while before going all in.
The river: Js, showing A -A -8 -2 -J and awarding you a giant 21.1M (105 BB) pot.
Should you: Fold Call
Your opponent was not a luckbox. Ship it!
Score: Fold (0 Points) Call (10)
Jonathan Little, a professional poker player and WPT Player of the Year, has amassed more than $7 million in live tournament winnings, written 14 bestselling books and teaches at pokercoaching.com. @jonathanlittle
Even though you lose to a few hands like 8-8 and A-2, you crush your opponent’s range. Your opponent would at least consider going all-in with any ace and may also sporadically bluff with flush draws. When you beat most of your opponent’s value bets as well as his bluffs, you have an easy call. You made the call and your opponent turned up a semi-bluff with 9 -7 . By betting large on the turn, you put him in a difficult spot where he could not profitably call, forcing him either to fold and give up his equity or go all-in, hoping to make you fold your hands worse than trips. Notice that if you instead bet smaller on the turn, your opponent would have been able to call profitably, resulting in far less money in the pot as a huge favorite.
When everyone checks to you, you should raise with all your playable hands, especially your best hands like A-K.
What the quiz scores indicate 30–40 Ready for the high stakes 20–29 Solid grinder 10–19 You can beat someone who doesn’t look at his cards 0–9 Poker is not the game for you
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ROLLING THE DICE
Die Probability Tackling the dicey subject of calculating the probability of contagion, and the mortality of the coronavirus By Fergus Simpson
A
mericans are struggling to understand the risk of catching and transmitting Covid-19. Should they feel 10 times as scared if confirmed cases increase tenfold in their city or state? Let’s figure it out. Daily risk Attempts at rationalizing risk often produce very large numbers that people find difficult to keep in perspective. They can run into the hundreds, thousands and millions. But alternative methods can illustrate the probability. Imagine throwing a handful of dice. What are the chances that they all land on a six? Well, with two dice, the chance of that happening is just one in 36, (1/6 x 1/6) or 2.8%. Roll more dice at the same time, and the numbers rise quickly. With six dice, the chance of rolling all sixes rises to one in 46,656 (66) rolls. For simplicity, let’s refer to levels of risk in terms of “two-dice risk” and “six-dice risk.” Notice that the probability of throwing sixes on six dice is much lower, and hence safer, than when throwing just two. The more dice, the safer it becomes. Every day, people expose themselves to some degree of risk. That’s unavoidable. Most tasks—such as commuting to work—lie below the threshold of acceptable risk. They’re safe enough that people perform them without significant concern. (Although they ought to take sensible precautions, such as wearing a seat belt.) How risky are typical daily
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tasks? Let’s examine a few. Flying. Taking a commercial flight exposes a passenger to a nine-dice risk. That’s an incredibly small probability, at around 10 million to one. Yet, many would-be travellers develop a fear of flying that demonstrates the difficulty of rationally assessing risk. Driving. Traveling 100 kilometres by car exposes the occupants of the vehicle to only a tiny degree of risk. If they were to take that journey each weekday for a year, the cumulative risk works out to the equivalent of throwing six dice. Canoeing. Canoeing typically exposes paddlers to a risk equivalent to throwing six dice each year, based on 141 deaths annually on 10 million canoe trips. Drinking or smoking. A moderate drinker or smoker increases the chances of developing heart disease and cancer, typically putting life at risk with six dice over the course of a year. For heavy smokers and drinkers, the risk becomes stronger, so they are playing with fewer dice. Personal risk of COVID-19 What’s the number of dice when it comes to the coronavirus? The sources of risk break down into two parts: (1) the risk of catching the virus, and (2) the risks once someone
DICE MATH
has the virus. The total risk can be found by adding the dice from each part. For example, if each of these parts is a three-dice risk, then the total risk is six dice.
On average, how many times must a six-sided die be rolled until a six turns up twice in a row?
Risk of catching the virus The risk of contracting the coronavirus depends partly upon behavior, such as masks and social distancing, and partly upon environment—how many sick people are in the vicinity. Environmental risk varies from region to region, from country to country and from one week to the next. In the early stages, when the virus is just beginning to spread through a country, perhaps only one in 10 million people catch it each day. That means that someone going about daily life as usual would face a nine-dice risk each day of catching the virus. That’s an incredibly low risk. However, if the virus spreads out of uncontrol, the pace of infection increases. At Week 1—defined by the infection rate of one in 10 million people catching it per day— people start with nine dice in hand. But in Week 2, the virus has spread to roughly six times as many people as the week before, and people would have eight dice. In Week 3 they have seven, and by Week 4 they have only six. Remember, a six-dice risk is still low—not something people would tend to worry about. But if the virus continues to spread, people would face a four-dice risk in Week 6. That would mean one in 1,300 people would
Solve this using a recurrence relation on E, the expected number of rolls. When one starts rolling, she expects, on average, six rolls until a six shows up. Once that happens, there is a 1/6 chance that she will roll once more, and a 5/6 chance that she will be, effectively, starting over again, and so have as many additional expected rolls as when she started. As a result, she can say …
Solving this, she finds that E = 42.
luckbox | august–october 2020
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trends
contract it each day. For a country the size of the United States, that would result in more than 250,000 new infections each day. How many infections per day are happening right now? The real number is tricky to pin down, especially in countries without extensive testing. But the number of deaths per day could serve as a slightly more reliable indicator. The challenge in using deaths as an indicator arises because of the significant lag between infection and death. The death rate provides a glimpse of the infection rate of two weeks ago, not today’s infection rate. When will a country hit the daily four-dice level? That’s where cases are rising in an uncontrolled manner and there’s more than one death per million, daily. Italy reached that point March 8— the day before the country went into quarantine. (They recorded 1,492 new cases that day, but (a) a substantial delay occurred between infection and diagnosis, largely because of the incubation period of the virus, and (b) many less-severe cases are never tested). The U.S. reached the four-dice level when it passed 327 deaths per day, back in March. As of July 14, it has yet to fall below this threshold and was having more than 700 deaths per day. Once a country enacts a lockdown, the infection rate begins to fall, and the associated risk falls with it. The dice increase in number. Risk after infection Some people who catch the virus don’t get sick. Others develop symptoms and recover within a few days. A small proportion die from complications. The risk of fatality for those under 18 is around one in 20,000. That’s a five-dice risk. For those in their 30s it’s a fourdice risk, and for those in their 60s it’s a two-dice risk. The figures may improve with the arrival of better treatments, such as antivirals. Many younger people are less concerned about their own well-
being than about passing the virus to someone more vulnerable because of existing health or immunity problems. So, in a sense, everyone’s risk after infection can be thought of as a two-dice risk. That’s roughly the chance that an infection will kill the person who catches it or someone to whom they pass it. If the risk after infection is represented by two dice, and the risk of catching the virus is (say) five dice (depending upon the situation), what do the two risks mean in combina-
tion? Simply add them together. The United States was at a four-dice risk of infection at press time. Combine those dice with the two-dice risk of death to find typical Americans are subject to a six-dice (1 in 46,656) risk of losing their lives to coronavirus. Fergus Simpson, Ph.D., is a senior researcher at Prowler.io, where he applies Bayesian statistics to problems in machine learning. He earned his Ph.D. in astrophysics at the University of Cambridge. @frgsimpson
SO, WHAT ARE THE ODDS? Risk of catching the coronavirus: Around 2,000 to 1
Risk of dying (under age 30) from the virus: Around 10 million to 1
Risk of dying (30-70): Around 500,000 to 1
Risk of dying (70+): Around 20,000 to 1
A statistician, not a virologist or an epidemiologist, wrote this piece. The numbers presented here are intended to illustrate mathematic and probability concepts and are not intended as medical advice.
august–october 2020 | luckbox
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TRADER
TOM PRESTON
1. Python for creating tools 2. Main tastyworks trading screen 3. Emails, writing content 4. Calculator
2 1
3
4
Chief Trading Strategist, tastytrade
and trade bond options.
Office Austin, Texas
Favorite trading strategy
Age 56 Years trading 27 How did you start trading?
Trading was the only business where it didn’t matter where you came from, but how you performed. I grew up watching Lou Ruykeyser’s Wall $treet Week back in the ‘70s with my grandmother in Fitchburg, Mass. Then I found Larry McMillan’s Options as a Strategic Investment in the local library when I was in high school, and I had it memorized in a week. I thought it would be cool to do that for a living, but I didn’t quite know how. I got degrees in Greek and Latin. Then I had a stint as a stock broker before I made it to Chicago in the early ‘90s to get an MBA
46
options purely mechanical and much less stressful.
Selling out-of-the-money options that are liquid, have a high probability of making money and have high implied volume. I’m product-agnostic and will trade options on stocks, futures, indexes and ETFs as long as they meet those requirements. I don’t make a lot of money on any one trade, but I build a portfolio of short options so my total theta gives me a good return on capital.
Favorite trading moment
Average number of trades per day
Worst trading moment
15
What percentage of your outcomes do you attribute to luck?
Zero. What some traders attribute to luck is just the statistical behavior of a standard normal variable, which is what stocks, futures and indexes are. Once I understood that, it made trading
The night of the 2016 election was great. I had bought VIX futures the day before, after they had dropped sharply, and I was short S&P 500 futures. As the returns came in and it looked like an upset, the /ES dropped 100 points in the overnight market and sent the VIX soaring. I didn’t have a dog in the election fight, but as everyone was watching the news, I was taking in profits. I was short strangles in the yen in October 1998, when it dropped something like 10% in two days and blasted through my short put. I rolled and adjusted the strikes for a couple months after that, but still had an overall loss on the trade. I had had a decent year up to that point, but that yen trade ate up a good chunk of my profits.
FAVORITE TRADING BOOK
OPTIONS AS A STRATEGIC INVESTMENT By Lawrence G. McMillan February 2002 $39.95 (Amazon) Paperback (176 pages)
luckbox | august–october 2020
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CALENDAR
PHOTOGRAPHS: (RNC) THE ENQUIRER/MEG VOGEL VIA IMAGN CONTENT SERVICES; (OBAMA) MARTIN H. SIMON ABACA PRESS VIA REUTERS
THE GOP AND THE S&P The S&P 500 has potential strength in the first half of August but then comes under pressure in a potential low on Aug. 26 during the Republican National Convention, when the sun, moon and Mercury are directly conjunct or opposite three first-trade planets often activated at market turns. Crude oil is under pressure throughout the month, particularly on Aug. 19, when four planets connect with the market’s first-trade Mars and Neptune in a big triangle. Gold could make a low on Aug. 5 (a Gann Day) as the sun aligns with its first-trade moon, then trend higher into early September. Soybeans appear volatile in August, making a high on Aug. 6, then falling to a significant low on Aug. 20—only to reverse course and score a potentially significant high less than a week later on Aug. 26. The 10-year Treasury note looks to be an upswing from a late July low into a potential high on Aug. 19, when the sun, Mercury and moon are at 90-degree angles to the firsttrade Mercury/Uranus axis. Susan Abbott Gidel, author of Trading In Sync With Commodities—Introducing Astrology To Your Financial Toolbox, also edits Red Letter Trading Days, a monthly newsletter. @susangsays
AUGUST 17-20 Democratic National Convention Milwaukee 24-27 Republican National Convention Charlotte, N.C. 29 Record Store Day (Day 1)
S E PT E M B E R 5 2020 Kentucky Derby Louisville, Ky. 7 Labor Day 7-14 Boston Marathon Virtual Race Boston 20 72nd Primetime Emmy Awards Los Angeles
Since the inaugural Record Store Day in April 2008, the event has blossomed into an annual observance for vinyl aficionados. Besides celebrating independently owned record stores, Record Store Day is often accompanied with vinyl and CD releases produced especially for the occasion. That means big business for the stores, which enjoyed a 200% increase in sales during the week of Record Store Day in 2018, according to Statista. Because of Covid-19, this year’s event—and its associated special music releases—will be spread across Aug. 29, Sept. 26 and Oct. 24.
Boston Marathon Virtual Race
23 National Dogs in Politics Day
Runners in the virtual 2020 Boston Marathon must complete the 26.2 miles within six hours and provide proof of timing to the Boston Athletic Association. A downloadable Boston Marathon toolkit includes signature race elements, such as a printable finish line and winner’s breaktape. Complete the virtual race and receive an official Boston Marathon program, t-shirt, medal and runner’s bib. —baa.org
26 Record Store Day (Day 2)
National Dogs in Politics Day
22 Autumnal Equinox (First day of fall) 22 Gann Day (Change of trend)
30 International Podcast Day internationalpodcastday.com
Then-president Barack Obama and his dog, Bo, outside the Oval Office in 2012.
Donald Trump accepts the Republican presidential nomination at the 2016 RNC.
Record Store Day
At first glance, “National Dogs in Politics Day” looks like yet another run-of-the-mill, inconsequential holiday, but the date—and its historical context—is far more nuanced. On Sept. 23, 1952, then-California Sen. Richard Nixon, a candidate for Vice President at the time, delivered what became known as the “Checkers Speech” on live television. In the speech— witnessed by about 60 million Americans— Nixon denied accusations of abusing campaign contributions but said he would keep the family dog, Checkers, which was a gift from a man in Texas. Dogs have a long tradition alongside U.S. presidents. Thirty presidents have had at least one dog while in office. Donald Trump is the first U.S. president without a pet since James K. Polk’s administration from 1845-1849.
august–october 2020 | luckbox
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BECOME A MARKET MASTER!
OPTIONS
FUTURES
Sign up for FREE!
tastytrade.com/tt/learn
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tactics essential trading strategies
BASIC
Start Here: Calculating Volatility With some (relatively) simple math, traders can track price moves in stocks and indexes
By Michael Gough
W
hen a stock or index is down on the day, financial media and self-proclaimed market gurus describe it as “volatile,” even though that down move just brought the stock back to where it started before it rose. “Experts” improperly use the label “volatile” to describe what traders call “two-sided price action.” It’s when the market goes up and down, instead of just up, up, up. Yet they can’t quantify this movement. When presented a chart of Spotify (SPOT) and Sirius XM (SIRI), how many could say with conviction which is more volatile? By applying some simple statistics, Luckbox readers can easily quantify volatility to aid their trading and decision-making. One way to quantify risk is to look at the historical movement of a stock. Each stock has a different past price change, and that average price change, along with the dispersion around that average, provides a valuable measure of a stock’s volatility. Using data in the distribution of daily returns, traders can determine “normal” movement for a given stock and set expectations around future movement. The starting point for measuring volatility is looking at the distribution of daily percent returns, as depicted for Spotify and Sirius XM in
“Two-sided price action” occurs when the market goes up and down, instead of just up, up, up.
Daily percent returns Like most daily return distributions, the history of Spotify and Sirius XM fall into a normal distribution, aka a bell-shaped curve. $SPOT
$SIRI
Average Daily Move
0.53%
-0.12%
1 Standard Deviation Daily Return
+/- 3.52%
+/- 3.35%
2 Standard Deviation Daily Return
+/- 7.06%
+/- 6.72%
3 Standard Deviation Daily Return
+/- 10.59%
+/- 10.08%
“Daily percent returns,” above. Like most daily return distributions, these fall into a normal distribution, or bell-shaped curve, with the average daily return centered around 0.00%. In most observations, the daily change in the price of both stocks is small. However, large daily moves do occur in the shape of the distribution. Narrow distributions centered around the mean indicate a lower volatility, while wider distributions with long or fat tails indicate greater volatility. Traders can use average daily returns and standard deviation, the amount of variation within the data, to quantify daily movement and volatility. Assuming the data is normally distributed, traders can use standard deviation to set probabilities around movement. Movements that fall within the one, two and three standard deviation ranges are expected to occur 68.3%, 99.5% and 99.7% of the time, respectively. “Daily percent returns” displays the average daily move and standard deviations for
Spotify and Sirius XM. Interpreting these results, a trader may say that 68.3% of the time Spotify will have a daily return between +/- 3.52%, while Sirius XM will have a daily return between +/- 3.35%. In addition, 99.7% of the time daily returns will fall between +/- 10.59% and +/- 10.08%, respectively. The larger range of Spotify’s daily returns indicates that it’s more volatile than Sirius XM. An investor looking to hold either stock for the long term may take that to mean Spotify is riskier than Sirius XM. A trader looking to make a few ticks on a short-term position may view Spotify as more opportune because it moves more. Regardless of an individual’s goal, standard deviation can measure both risk and opportunity to provide a clear picture of possibilities. Michael Gough enjoys retail trading and writing code. He works in business and product development at the Small Exchange, building index-based futures and professional partnerships. @small_exchange
august–october 2020 | luckbox
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tactics
INTERMEDIATE
The Limits of Standard Deviation Why use standard deviation to look at past stock prices when options provide a window into what’s to come? By Michael Rechenthin
O
ne of the easiest ways to quantify risk is by observing standard deviation, which is a fancy way of quantifying how much a stock has moved. To calculate a stock’s standard deviation, take all the prices over the past year and apply a daily percentage change. Then apply a standard deviation to the data. (See “Of historical interest,” right.) The standard deviation states that Coca-Cola (KO) moved an average of 0% per day and had a standard deviation of 2.1%. On the other hand, Tesla (TSLA) moved an average of 0.9% per day and had a standard deviation of 5.0%. So, Tesla has more risk and thus more opportunity. Opportunity arises with a stock that is moving around in price because it enables an options trader to use more techniques to make money when it goes upward, downward or sideways. As a general rule, standard deviation is an interesting concept for traders—but standard deviation’s practical use for a trader is limited, especially in a fast-moving market. It explains what has already happened. Traders can gain the same general information by simply looking at a chart. The stock that moves around more has more opportunity and therefore more risk. To get a real-time estimate of risks, look at options. Options are
50
Of historical interest Compared with Coca-Cola, Tesla’s stock price has a higher standard deviation and thus offers more opportunity but increased risk. Date
KO
2019-07-12
52.12
Daily Percentage Change
TSLA
Daily Percentage Change
245.08
2019-07-15
52.13
0.0%
253.50
3.4%
2019-07-16
52.14
0.0%
252.38
-0.4%
2020-07-07
45.21
0.0%
1389.86
1.3%
2020-07-08
45.07
-0.3%
1365.88
-1.7%
2020-07-09
43.91
-2.6%
1394.28
2.1%
2020-07-10
45.15
2.8%
1544.65
10.8%
Average Daily Move
0.0%
0.9%
Standard Deviation
2.1%
5.0%
insurance, and insurance is priced on “expectation.” The greater the risk of loss, the greater the cost of the insurance. Thus, options for strikes are priced based on thousands of people’s desire for insurance. The greater the desire, the greater the costs. This cost is plugged into a formula, and the output is the stock’s implied volatility. The good thing is that any good trading software will provide that number. Take a look at the implied volatility of Tesla options for the July 17 and July 24 expirations in “Wild fluctuation,” (p. 50).
Wild fluctuation Volatility in Tesla’s stock price spiked because traders were anticipating a company earnings report. Expiration
Implied Volatility
July 17, TSLA options
107%
July 24, TSLA options
140%
luckbox | august–october 2020
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The scale is annualized—so Tesla, based on the July 17 options, is expected to move either up or down 107% over the next year. Look now at the 140% implied volatility of the July 24 expiration. Why the huge increase when July 24 happens only one week later? Earnings occurred on June 22. Stocks tend to move on their earnings date, which often explains the largest movement of a stock, and July 17 expiration isn’t affected by that date, where the July 24 is
affected, causing a 30% increase in the annualized move. This is what makes implied volatility really useful for a trader. It provides a forward-looking view of what the “market” is expecting. Which stocks in the Dow Jones are seeing the most and least forward-looking volatility? We provide the list in “The most and the least,” right.
The most and the least In the near future, these stocks are expected to have the highest and lowest volatility in the Dow. Implied Volatility BA
75%
RTX
55%
DOW
54%
AXP
50%
JPM
49%
PG
32%
MRK
31%
KO
31%
JNJ
28%
VZ
26%
Michael Rechenthin, Ph.D., aka “Dr. Data,” is the head of data science at tastytrade. @mrechenthin
Options are insurance, and insurance is priced on expectation. The greater the risk of loss, the greater the cost of the insurance.
Making Our Own Luck …
Highest Implied Volatilities (Most Aggressive)
Lowest Implied Volatilities (Most Conservative)
!
ner
Win
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ADVANCED
Low Price, High Risk Beware of low-priced high-volatility stocks—they’re usually no bargain By Anton Kulikov
N
therefore I am going to buy the stock because the odds are in my favor.” In reality this isn’t the case. This is where the concept of extraneous risk comes into play.
“Hidden” risks First, look at implied volatility—a reason traders might be inclined to buy low-priced stocks. Hertz (HTZ), for example, has been in the news because it filed for bankruptcy protection at the end of July. Its stock had been trading at $1.37 a share in early July, with a 250% yearly implied volatility. The previous article on implied volatility (p. 49), shows the IV is the anticipated one standard deviation move for the underlying for the next year. This is where beginning investors get stumped. How can a stock have a range of 250%? The upside makes sense because Hertz could trade around $4 next year, but how can a stock go down 250%? In short, it can’t. That’s why investors think, “I have a 250% upside potential with a downside potential of only 100% (total loss),
Bad financial health Extraneous risk factors typically affect companies that aren’t financially healthy. Usually, such companies are low-priced, like Hertz. Factors include sudden loss of income, high debt-servicing costs, reduction in human capital through “brain drain” and low cash reserves. These risk factors make the stock more likely to hit zero than go up 250%, as stated by the implied volatility. On a purely conceptual level, when a stock has an IV of 20%, it means that “over the next year you can expect the stock to trade within +/- 20% with 68% certainty.” Normally, that assumes the chance of going up 20% is the same as the chance of going down 20% in a symmetrical probability distribution. But with lower-priced stocks that have extremely high IVs, like Hertz, the probability distribution given by implied volatility is not symmetrical. That means the chance of the stock going up 250% is not the same as the chance of the stock going to zero. In fact, because of extraneous risk factors, the chance of the company going out of business is much greater than the chance of the stock making a 250% recovery. Unfortunately, no one knows the exact skew of the distribution, but it can be estimated. Assuming the market is efficient, there should be no “free money”
ovice investors are attracted to stocks that sell for low prices, say $5 or less, because they can own a significant number of shares for a small amount of capital. What’s more, they can realize huge returns in a short time. Focusing on the implied volatility of the stock may excite neophyte investors even more because of the potential for more than 100% returns, while losses are capped because the stock can only go to zero. So what’s not to like? Well, extraneous risk factors can plague a smaller-priced underlying. When traders take those risks into account, low-priced stocks may seem riskier than expected.
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trade out there. In other words, when an investor buys a stock in the short term, the expected value of the stock should be slightly greater than zero.
Companies with low-priced stocks can suffer a sudden loss of income. They may also have to contend with low cash reserves, high debt-service costs or a reduction in human capital through “brain drain.”
Learn about big stocks versus volatile stocks
Expected value For this exercise, assume the expected value of the stock trade— for example, the P/L of the trade— should be zero, meaning the market is efficient to the up and downside. If the implied volatility of the stock is 250%, then that is to the upside only. To the downside, assume the loss will be capped at 100%. A simple equation will provide the probability of the stock making the recovery and the probability of the stock going bust. Keep in mind, this is a simplified example and should be used for informational purposes only.
The probability of the stock profiting 250%, or $3.42, is x. The probability of the stock losing 100%, or $1.37, is (1-x). The expected value (P/L)L is $0 $0 = $3.42x - $1.37* (1-x) The probability of the stock profiting 250% is roughly 29% compared with falling to zero at 71%. The probabilities are not the same, and that is factored into the market price of the stock. When considering a low-priced stock trading with an extremely high IV, remember there’s no free lunch—the risk factors and probabilities are priced efficiently in the market. There’s a reason the stock isn’t expensive. Anton Kulikov is a trader, data scientist and research analyst at tastytrade. @antonkulikov97
luckbox | august–october 2020
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Risk. Ask questions, not permission. Actual commission-free* option trading. Stop paying for legs. dough.com dough is a registered broker dealer offering self-directed brokerage services. *regulatory & other fees apply. member FINRA/SIPC. Š2020 dough.
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CHEAT SHEET
The Strangle This trading strategy can add a short premium and an element of time to a portfolio By Mike Hart
E
legant in its simplicity, the strangle captures a range of possible price movement in the underlying. The strategy consists of a naked short call and a naked short put (both sold out-of-themoney and both sold for a credit). To profit, the investor buys back before expiration at a lower price. When choosing the strikes of a strangle, look to delta as the metric to guide the trade. Using the statistical measure of one standard deviation, approximate the level for the 16 Delta strike. Be more aggressive and take more risk. Sell the one-half standard deviation or the 30 Delta strike. Selling a strangle means being short volatility. Sell when volatility is high. To determine when volatility is high, use the metric IV Rank, which is based on a scale from 1% to 100%. Anything more than 30% is considered high. The goal is to see a contraction or a reversion of volatility back to its mean. Traders also short time, known as the Greek Theta, when they sell a strangle, meaning that when they sell a strangle they get paid for time. (When traders buy an option they pay for time.) As time passes, they collect positive theta in the form of profit. Because of that, the goal is to maximize the effectiveness of decay. By studying the shape of the theta curve, traders can determine the most efficient timeframe to sell a strangle between 30 and 60 days. Having a strangle in the toolbox of trading strategies can add a short premium and an element of time to any portfolio. Mike Hart, a former floor trader at the Chicago Stock Exchange and a proprietary futures trader, specializes in energy markets and interest rates. He’s a contributing member of the tastytrade research team. @mikehart79
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Setup Sell Short Call OTM Sell Short Put OTM
Default levels 16 Delta or 1 Standard Deviation 30 Delta or 1/2 Standard Deviation
Time Frame SHORT STRANGLE
Use most liquid chain that ranges between 30 and 60 days
Volatility levels When selling, look for high implied volatility Or As a more descriptive metric use IV Rank
Active Investor Alert! Follow @mikehart79 on Twitter for daily trading ideas and tactics.
august–october 2020 | luckbox
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trades actionable trading ideas
STOCKS
I N T H E N EWS
iHeartMedia: Radio’s Long Game By Kevin Mackie
reative destruction displaces obsolete products and services—along with the aging companies that provide them. Austrian economist Joseph Schumpeter, who coined the phrase, called it “the essential fact about capitalism.” It’s a process that explains why Tesla exists and the Durant-Dort Carriage Company doesn’t. But a late 19th century contemporary of Durant-Dort remains alive and well today: broadcast radio. Despite its advanced age, radio hasn’t lost its economic virility. The medium has remained nearly as relevant today as ever, seemingly immune to the power of creative destruction inherent in its own progeny—digital music streaming and podcasts. In fact, radio and its descendants have even helped each other grow. That fruitful symbiosis of the generations is reflected in iHeartMedia (IHRT), a publicly traded company that began in broadcast radio but has also moved into digital streaming and podcasts.
C
Reach Radio reaches a super-majority of adult Americans every week— 92% according to the Nielsen Total
Audience Report. So, radio’s reach beats the reach of TV and smartphones. Plus, the multitudes listening to radio tend to tune in for a substantial amount of time. Americans aged 12 and up report listening to nearly two hours of radio every day. Disruptive technology New technology is helping radio, not hurting the venerable medium. Some 25% of smart speaker owners frequently use them to tune into an AM or FM music station, and 15% use them often to hear news or talk radio, Jacobs Media’s annual Tech Survey found last year. So radio’s reach is great, and the relevance is readily apparent, but is it effective as an advertising tool? That data is clear. Why radio? Return on investment for radio ads ranges from $6 to $12 for every $1 spent. While that’s competitive with other media, radio also offers additional advantages. First, radio advertising often costs less to produce than other types of ads, as LeadsRx demonstrates by combining objective evidence with
Radio’s longer reach Advertisers rely on radio for a longer reach than they get from TV and smartphones. Weekly U.S. Reach ( Percent of population)
Radio
TV
Smartphone
Adults 18+
92%
87%
81%
18-34
90%
75%
87%
35-49
94%
89%
89%
50+
91%
93%
71%
Source: Nielsen Audio Today June 2019 Report
Radio advertisers enjoy a captive audience because most people listen in the car. august–october 2020 | luckbox
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Despite its advanced age, radio, hasn’t lost its economic virility.
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professional opinion. That makes sense. TV advertising requires a script writer, professional actors, and a team to record audio and visual and to sync it with music or animations. Radio requires a script, someone to read it and someone to record it. Second, radio isn’t subject to the plague of ad fraud, primarily an internet phenomenon. Fake clicks and downloads, hijacked hyperlinks, and malware bots that imitate human interactions cost advertisers billions of dollars annually. This criminal behavior upends the premise of advertising: “You have to spend money to make money.” Ad fraud whittles the slogan down to, “You spend money.” With radio, it’s nearly guaranteed that when an ad emanates from a set of speakers at least one set of human ears will hear it. Ad fraud is largely avoided. Third, radio offers advertisers targeted marketing. Radio is programmatic, with niches that include conservative talk, country music, business news and many others. That enables advertisers to reach the people most likely to buy their products. For example, Luckbox could realize a considerable return on ad spend by airing an ad during National Public Radio’s Marketplace, a program focused on economics and investing. Fourth, radio listeners are often close to the point of sale when they hear an ad. Hearing a radio bit about a clearance sale at T.J.Maxx while driving by the store provides a case in point. A TV ad about the sale isn’t likely to persuade anyone to get up off the couch. Fifth, radio advertisers enjoy a captive audience because most people listen to radio in the car, where ad avoidance plays less of a role than in other media. LeadsRx stresses the importance of that fact: “Advances in technology have changed the way people interact with media. Ad avoidance now plays a bigger role in advertising decision-
How America uses smart speakers One-fourth of smart-speaker owners frequently use them to listen to music from AM or FM radio stations. They also listen to AM or FM news and talk. Percentage of smart-speaker owners who “frequently” use their device or devices in each way.
Ask general questions
28%
Hear weather updates
27%
Set a timer
25%
Listen to music from an AM/FM radio station
25%
Ask fun questions
21%
Control smart home devices
17%
Listen to news or talk from an AM/FM radio station
15%
Set reminders/make to-do lists
15%
Use as an alarm to wake up
12%
Listen to Pandora
11%
Listen to news/info (flash briefing)
10%
Listen to Spotify
9%
Listen to any type of audio with children
8%
Get directions
8%
Get sports updates
7%
Make phone calls
6%
making than it did just 10 years ago.” Ad avoidance poses problems online because consumers can adjust their attention to other parts of the screen or use ad blockers to avoid commercials, LeadsRx says. But avoidance occurs in print and on television, too. In fact, 74% of survey respondents tell LeadsRx that they feel more attentive listening to NPR than when watching television. With all of these advantages, investing in the likes of iHeartMedia, the largest owner of radio stations in the country, starts to make sense. iHeartMedia iHeartMedia owns 848 broadcast radio stations scattered throughout the United States, and that vast scale puts it far ahead of competitors. The company’s 10-K explains the competitive advantage. (See “How iHeartMedia views itself, p. 57.) Notably, iHeartMedia is building a presence in digital streaming and podcasts. That growth has been accelerating lately—in part because of the pandemic—with a year-over-year revenue increase of
Source: Jacobsmedia.com
22.2%. Digital now makes up 13% of total revenue. With a diversity of revenue streams, the company is taking advantage of every aspect of the sector. True, iHeartMedia went bankrupt in 2018 after shouldering a massive load of debt. Following a leveraged buyout in 2008, the company was paying $1.5 billion annually just to service the interest expense. With the restructuring, its debt load has become far more manageable but still significant. Fortunately, no meaningful maturities arise until 2026. Valuation iHeartMedia stock has languished ever since the company emerged from bankruptcy. It re-listed at $17.50, traded sideways for a while and never broke above $18, only to plunge beneath $5 a share during the coronavirus panic. At press time it sits at around $9. In the 11 months between bankruptcy and the valuation at the end of its 2020 first quarter, iHeartMedia generated $3.17 in free cash flow
luckbox | august–october 2020
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(FCF). That puts the price/FCF ratio at only 2.6X, and that’s without a full year’s worth of operating results. While that sounds like a steal of a deal, remember the company’s debt load amounts to about $40 a share. But, for anyone willing to play the ultra-long game, iHeartMedia could become a cash machine. First, incremental payments on debt will lower iHeartMedia’s interest expenses. Second, the company has negotiated terms that bring down its weighted average interest rate resulting in $40 million in savings. Third, any improvement in operating results will boost cash. Fourth, 2019 was the company’s first profitable year in a decade. Finally, even before Covid-19 struck, the company announced modernization initiatives that will help save $100 million in expenses annually. In response to Covid-19, it pulled several other levers, including slashing executive compensation and furloughing non-essential employees. That’s expected to help save $200 million this year. The power of radio has, in fact, been strengthened by Covid-19.
While iHeartMedia had an absolutely horrific quarter with total revenues down 47%, the revenue trajectory per month at the company has slowly improved: down 50% in April, down 49% in May, down 41% in June and down 27% in July. So investors with a time horizon of five years or more should consider iHeartMedia. Cash generation is good and will get better as interest expense goes down. Big corporations have begun shunning social media advertising, which gives iHeartMedia an opportunity to capture market share. What’s more, the company is in a position of profitability because it can use any of its platforms to advertise the others for free. It can, for example, use its radio stations to advertise its live events, streaming app and growing library of podcasts. An investment in iHeartMedia casts a vote of confidence in the continued power of radio and audio media in general. Kevin Mackie is a financial coach and an analyst at Seeking Alpha. The author is long IHRT stock at the time of this writing.
The low cost of radio ads Advertisers and ad agencies realize that radio spots have low production costs, a study by Re-evaluating Media indicates. Production costs as a percentage of media spend, scored from lowest to highest.
1
How advertisers and agencies rate production cost on a scale of 1-5, where 5 is “very good” and 1 is “very poor.”
Online display
10
1
Online display
4.3
2
Radio
9
2
Radio
4.0
3
Social media (paid)
8
2
Social media (paid)
4.0
4
Newspapers
6
4
Newspapers
3.6
4
Magazines
6
5
Magazines
3.3
6
Out of home
5
6
Online video
3.2
7
Online video
3
7
Out of home
2.9
7
TV
3
8
Direct mail
2.7
7
Cinema
3
9
Cinema
1.9
10
Direct mail
1
10
TV
1.8
The audience for terrestrial radio remains steady and high: In 2018, 89% of Americans (ages 12 and up) listened to terrestrial radio in a given week, a figure that has changed little since 2009. Source: Nielsen Media Research
HOW IHEARTMEDIA VIEWS ITSELF Broadcast radio: We have a strong relationship with our consumers, and our broadcast radio audience is almost twice as large as that of the next largest commercial broadcast radio company, as measured by Nielsen. Digital: Our iHeartRadio digital platform is the No. 1 streaming broadcast radio platform—with five times the digital listening hours of the next largest commercial broadcasting company, as measured by Triton. Podcasts: We are the No. 1 commercial podcast publisher—and we are two times the size of the next largest commercial podcaster as measured by downloads, according to Podtrac. Social Media: Our personalities, stations and brands have a social footprint that includes 215 million fans and followers, as measured by Sherablee, which is nine times the size of the next largest commercial broadcast audio media company. This social footprint was at the heart of delivering 310 billion social media impressions of our 2019 iHeartRadio Music Awards and its associated activities. Events: We have over 20,000 local live events per year and eight major nationally recognized tentpole events, which provide significant opportunities for consumer promotion, advertising and social amplification. Note: This information is quoted directly from the company’s most recent 10-K report.
august–october 2020 | luckbox
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THE TECHNICIAN
A V E T E RA N T RA DER TAC K LES T EC HNICALS
Don’t Touch That Dial By Tim Knight
his year marks the 100th birthday of commercial radio. On Nov. 2, 1920, the first commercial station began broadcasting in Pittsburgh, and the next 20 years became known as the Golden Age of Radio. Popular culture would never be the same. As the years passed, some of the biggest hit songs, in a true “meta” fashion, were about radio. Think of Queen’s Radio Ga-Ga, The Buggles’ Video Killed the Radio Star and Elvis Costello’s Radio, Radio. By 1929, nearly 40 million American homes had radios, and one of the hottest stocks of the Roaring ‘20s was the now-defunct Radio Corporation of America, or RCA. RCA was, as a stock, the Apple (AAPL) of its day. It crashed, as almost all equities did in the Great Depression, plunging from $505 to $26. It’s impossible to think of any scenario that would cause the present-day Apple to lose 95% of its value the way RCA did. A century is a long time in the world of technology, and most public companies that are deeply committed to the radio business are doing poorly these days. Among six publicly traded radio companies described here, four are “old school” media companies that own as many as hundreds of radio stations in the United States and garner their revenue from selling advertising. The other two companies deliver music and words, but their stocks have been thriving.
T
Emmis Communications (EMMS) Emmis is the Hebrew word for truth, and the truth is that Emmis shareholders haven’t fared so well. From 1994 through 2006, Indianapolis-based Emmis formed a tremendous distribution top, tumbling from its peak (adjusted for splits) of about $160 down to virtually a penny stock. Although its percentage gain from 2009 through 2014 was tremendous, it has returned to the lifetime lows it was experiencing at the depths of the 2008/2009 bear market. In short, this stock looks extraordinarily ill, having lost virtually all of its value.
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Emmis Communications Emmis Communications Corp. (EMMS) 1.37 0.02 1.23% D: 11/08/1999 O: 99.35 H: 104.51 L: 95.85 C: 102.51 Y: 164.23 160 120 90 70 50 40 30 20 10
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2020
Salem Media Group Salem Media Group Inc. (SALM) 1.15 -0.05 -4.17% D: 01/30/2004 O: 15.09 H: 15.99 L: 14.70 C: 14.94 Y: 17.50 18 15 12 10 8 6 5 4 3 2 1
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Salem Media Group (SALM) Salem Media Group Inc., based in Camarillo, Calif., targets Christian audiences and focuses on “family-themed content and conservative values.” But there’s nothing divine about its recent performance. Salem’s chart sports two nearly identical and very well-formed saucer tops. The first spanned 2000 to 2006 and was followed by the stock’s dreadful fall. Then it recovered most of its value, moving up many hundreds of percentage points in price. But from 2012 through 2018 another saucer pattern formed, which has thus far driven the stock price lower again. It seems altogether likely that the lows of 2008 may be revisited. Saga Communications (SGA) In Saga’s own words, “Radio is the heart of our being. We have a rich portfolio that spans 27 diverse U.S. markets comprising more than 100 brands. Radio continues to be the most efficient way for businesses to reach local markets en masse.” Like other public radio companies, its ownership of stations is geographically broad. Saga has held up relatively well, compared with its peers. While losing about 50% of its stock price might not seem like an event worth celebrating, it’s far better than the virtual wipeouts that competitors have experienced. Traders looking for shorting opportunities might find this one of the more promising plays because the distribution top is so well-formed and, as of this writing, there’s still ample room for lower prices. One drawback, however, is that the stock is rather thinly traded. Entercom Communications (ETM) Entercom Communications Corp., a market leader founded in 1968, owns 235 radio stations in 48 media markets. It’s the second-largest radio-based media company in the country. Although they have different target markets, Entercom and Salem have similar charts. The saucer patterns and their timing are much the same, and they also share corresponding plunges in 2008 and 2020. As with many of the “old school” radio conglomerates, the equity has lost most of its peak market capitalization. Spotify (SPOT) Not all radio companies are suffering. Strictly speaking, Spotify isn’t a “radio” company
Saga Communications Saga Communications Inc. (SGA) 26.80 0.66 2.52% D: 12/14/1999 O: 34.89 H: 38.96 L: 32.41 C: 36.48 Y: 50.09 160 50 40 35 30 25 20 15 10
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Entercom Communications Entercom Communications Inc. (ETM) 1.34 -0.27 -16.77% D: 12/21/2012 O: 5.69 H: 6.18 L: 5.69 C: 6.08 Y: 55.93 45 35 30 25 20 15 10
5
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2009
because it doesn’t own hundreds of radio stations that broadcast radio waves to homes and cars. Instead, it’s a streaming audio service with an enormous library of music and podcasts. The company uses a “freemium” model and its customers belong to two different groups. One group, totaling about 160 million users,
2011
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2015
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2019
Audio-based media will always find a place in American culture, but the nature of those companies has changed drastically. august–october 2020 | luckbox
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uses the service for free in exchange for seeing or hearing advertisements on the site. For those users, Spotify seems much like traditional radio. The difference is that Spotify users can select precisely what they want to hear instead of simply tuning in to a station that plays music they tend to like and hoping a favorite song comes on now and then. The other group, numbering about 130 million users, pays for subscriptions to Spotify. For a modest monthly fee they don’t have to deal with ads and they have unlimited access to Spotify’s music and spoken word library. Recently, the stock has been doing extraordinarily well. Since its IPO in 2018, Spotify has progressed through three phases. During its first six months as a publicly traded company, the stock meandered aimlessly. From September 2018 until March 2020, it traded in a broad range from about $110 to $160, moving in a relatively cyclic fashion. In the spring of 2020, the stock exploded higher, nearly doubling in price in just a couple of months and reaching lifetime highs. Pandora, a company somewhat similar to Spotify, was aquired in early 2019 by Sirius XM (SIRI) for $3.5 billion. That did not result in a terrific outcome for shareholders, who had seen Pandora’s value decrease by about 80% before the company was sold. Urban One (UONE) Another media company whose stock has been defying the “old school” radio doldrums is Urban One Inc. (formerly Radio One). Cathy Hughes started the Silver Spring, Md.-based media conglomerate in 1980, and its media properties target African Americans. In fact, Urban One is the largest African-American-owned broadcasting company in the United States, with 55 radio stations. It also owns most of the syndicator Reach Media. Urban One Inc.’s website is known as Interactive One, and its cable network is TV One. Urban One is an extraordinary success story. From 1999 until 2009, the stock performed wretchedly, losing essentially all of its value. It recovered, in fits and starts, from 2009 through early 2020. As of this writing, a veritable mob of Urban One fans has swarmed into the stock, pushing it up thousands of percentage points in a short time. While that could mark a key inflection point for the equity’s performance, it would seem its recent behav-
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Spotify Technology Spotify Technology (SPOT) 264.95 -2.52 -0.94% D: 10/03/2018 O: 179.26 L: 173.53 C: 176.95 Y: 265.74 270 260 250 240 230 220 210 200 190 180 170 160 150 140 130 120 110 Apr ‘18
Aug ‘18
Nov ‘18
Mar ‘19
Apr ‘18
Nov ‘19
Mar ‘20
Urban One Inc. Urban One Inc. (UONE) 20.75 -1.25 -5.68% D: 02/12/2004 O: 18.13 H: 19.66 L: 18.01 C: 18.99 Y: 83.72
95 80 65 55 45 35 25 20 15 10 5
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ior has more to do with momentum and online chatter than with any fundamental change in the company’s business prospects. Broadly speaking, the radio business seems to be going the way of the VCR and 8-track tape. But the newer companies have oriented their distribution around technology and have captured the public’s imagination. Audio-
2011
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2015
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2019
based media organizations will always find a place in American culture, but the nature of those companies has changed drastically during the past decade. Tim Knight has been using technical analysis to trade the markets for 30 years. He hosts Trading the Close daily on the tastytrade network and offers free access to his charting platform at slopecharts.com.
luckbox | august–october 2020
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CHERRY PICKS
R I PE & J U I CY T RADE IDEAS
Futures: Ticked Off By Michael Rechenthin
iffering tick sizes and varying dollars per tick can make futures trading confusing. This handy crib sheet can help. Keep an eye on the “Median Day-to-Day Move-
D
Description
Equities
S&P 500
Rates Metals
$ Per Tick
Futures USD Notional
Equivalent Shares of ETF
Futures Correlation with ETF
Median Day-toDay Movement $1,150
/ES
0.25
$12.50
$162,000
500 SPY
0.98
0.25
$1.25
$16,200
50 SPY
0.98
$115
Dow Jones
/YM
1
$5.00
$131,000
500 DIA
0.98
$975
Dow Jones (1/10th size)
/MYM
1
$0.50
$13,100
50 DIA
0.98
$98
/NQ
0.25
$5.00
$214,000
800 QQQ
0.98
$1,510
Nasdaq (1/10th size)
/MNQ
0.25
$0.50
$21,400
80 QQQ
0.98
$151
Russell 2000
/RTY
0.1
$5.00
$75,000
500 IWM
0.97
$700 $70
Nasdaq
/M2K
0.1
$0.50
$7,500
50 IWM
0.97
/SM75
0.01
$1.00
$4,800
20 SPY
0.85
$53
30-year US Treasury Bond
/ZB
0.0313
$31.25
$182,000
1200 TLT
0.90
$719
10-year US Treasury Note
/ZN
0.0156
$15.63
$140,000
1200 IEF
0.92
$250
5-year US Treasury Note
/ZF
0.0078
$7.81
$126,000
900 IEI
0.92
$125
2-year US Treasury Note
/ZT
0.0039
$7.81
$221,000
2500 SHY
0.80
$78
Gold
/GC
0.1
$10.00
$197,000
1100 GLD
0.98
$890
Gold (1/10th size) Silver Small Precious Metals
Energy
Minimum Tick Size
/MES
Russell 2000 (1/10th size)
Agriculture
Futures
Michael Rechenthin, Ph.D. (aka “Dr. Data”), heads research and data science at tastytrade. @mrechenthin
Sign up for free cherry picks and market insights at info.tastytrade. com/cherrypicks
S&P 500 (1/10th size)
Small Stocks 75
Foreign Exchange
ment” column, and don’t trade too big for the account. Don’t fret about the cacophony of contract sizes, notional values and futures-trading ticks. Save this!
/MGC
0.1
$1.00
$19,700
110 GLD
0.98
$89
/SI
0.005
$25.00
$117,000
5400 SLV
0.98
$805
/SPRE
0.01
$1.00
$7,500
50 GLD
0.91
$25
Crude Oil
/CL
0.01
$10.00
$40,000
1400 USO
0.95
$760
Crude Oil (1/2 size)
/QM
0.025
$12.50
$20,000
700 USO
0.95
$375
Natural Gas
/NG
0.001
$10.00
$18,500
1800 UNG
0.92
$450
Natural Gas (1/4th size)
/QG
0.005
$12.50
$4,625
450 UNG
0.92
$113
Corn
/ZC
0.25
$12.50
$16,500
1400 CORN
0.94
$125
Corn (1/5th size)
/XC
0.125
$1.25
$3,300
300 CORN
0.94
$25
Wheat
/ZW
0.25
$12.50
$26,500
5000 WEAT
0.92
$238
Soybeans
/ZS
0.25
$12.50
$44,500
3000 SOYB
0.96
$225
Euro FX (€ 125,000)
/6E
0.00005
$6.25
$148,000
1300 FXE
0.98
$375
Euro FX (€ 12,500)
/M6E
0.0001
$1.25
$14,800
130 FXE
0.98
$38
Pound (£ 62,500)
/6B
0.0001
$6.25
$81,500
650 FXB
0.98
$300
Pound (£ 6,250) Canadian (C$ 100,000) Australian (A$ 100,000) Australian (A$ 10,000) Yen (¥ 12,500,000) Small Dollar
/M6B
0.0001
$0.63
$8,150
65 FXB
0.98
$30
/6C
0.00005
$5.00
$75,000
1000 FXC
0.98
$165
/6A
0.0001
$10.00
$72,000
1000 FXA
0.98
$220
/M6A
0.0001
$1.00
$7,200
100 FXA
0.98
$22
/6J
0.0000005
$6.25
$119,000
1300 FXY
0.98
$288
/SFX
0.01
$1.00
$15,000
150 FXE
-0.88
$20
august–october 2020 | luckbox
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DO DILIGENCE
QU I E T FOU N DATIO N HELPS P ROACT IV E INV ESTO RS U NDERSTAND TH EI R PORTFOLI OS
Streaming Goes Mainstream By James Blakeway
ghostly silence prevails in most of the nation’s bars, stadiums, theaters, museums, nightclubs and amusement parks. Americans are staying home in droves, attempting to curb the spread of Covid-19. And to fill the resulting void in their lives, many are turning to their favorite streaming services. Luckily for those sheltering in place, there’s never been a better time to be overwhelmed by the volume of streaming content that’s available. During the past year, new contenders have proliferated in the streaming industry, spoiling viewers and listeners with a staggering volume of possibility. Would-be subscribers could hardly keep up with the choices. But consumers can do more than just subscribe—they can invest. Public firms own and operate most major video streaming services, providing a chance to partake in the profits of favorite content providers. Note that larger companies own most streaming services, and their streaming divisions represent only a fraction of the total business. Thus, any investment in those firms serves as a partial, indirect investment in the streaming service. That’s not inherently negative, given that potential profits (and losses) are tied to the success of a larger portfolio of the company’s business and not just the streaming division.
A
Netflix Conversely, any capital allocated in Netflix (NFLX) is a direct investment in their streaming platform. After an
62
Mainstreaming Netflix represents just about the only pure-play investment opportunity in streaming because diversified companies own most major streaming services. (Data as of July) Streaming Service
Monthly Subscription Cost
Owned by
Stock Symbol
Netflix
$12.99
Netflix Inc.
NFLX
Amazon Prime Video
$8.99
Amazon Inc.
AMZN
Apple TV+
$4.99
Apple Inc.
AAPL
Hulu
$5.99 (with ads) / $11.99 (no ads)
Disney (67%), Comcast (33%)
DIS / CMCSA
Disney+
$6.99
Disney
DIS
HBO Max
$14.99
AT&T, Inc. (WarnerMedia)
T
NBC Peacock
$4.99 (Free to Xfinity Customers)
Comcast Corp. (NBC Universal)
CMCSA
initial slump along with the rest of the market in early 2020, Netflix shares soared back to all-time highs, over $200 billion in market cap. Nextflix reached those lofty heights by pivoting from mail-order DVDs to streaming and then pivoting again to produce original movies and series. But nothing’s guaranteed. While investors pile into Netflix, new contenders are trying to eat into its market share. Potential investors may want to wait for a pullback before jumping into Netflix given the number of industry analysts who believe the stock should be priced as low as $200. Amazon Prime Video Meanwhile, Amazon Prime Video is only a miniscule component of the behemoth that is Amazon (AMZN). However, members cherish Amazon
Prime and now total more than 100 million in the U.S. alone. Like Netflix, Amazon stock roared higher after a small slump in February, surpassing $3,000 per share for the first time in early July. Given Prime Video’s small contribution to the company, it’s hard to make the case that purchasing shares is investing in streaming. Amazon shares are, however, a broader investment in technology that makes streaming possible. Amazon Web Services, the company’s cloud computing business, continues to contribute to Amazon’s profits, and even Netflix uses it to host all of its content and analytics. AppleTV+ AppleTV+, a new contender in streaming, costs less than other services, at $4.99 per month.
Evaluate any portfolio with Quiet Foundation
luckbox | august–october 2020
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What’s more, AppleTV+ presents original shows and content, which is currently sparse. As with Amazon, Apple (AAPL) makes just a microscopic portion of its income from streaming. However, Apple currently gives away AppleTV+ for free with purchases of Apple devices. That could be a deciding factor for some consumers in choosing between an Apple TV box versus an Amazon Fire TV or Roku. Like Netflix and Amazon, Apple shares reached new highs at the beginning of the summer, crossing $350 per share for the first time. Disney+ Investors contemplating Disney (DIS) stock are gravitating toward a purer entertainment play. Disney not only owns some of the largest movie franchises and studios, including Marvel, Star Wars and now 20th Century Fox, but also major TV networks that include ABC and ESPN. By the end of 2019, Disney was also the majority owner of two of the most popular streaming platforms. Its main platform is Disney+, which the company launched in late 2019. Disney+ famously unlocked the Disney “vault,” playing host to all the movies and TV shows from the company’s long history. On top of the Disney movies were the Marvel and Star Wars films, all in one streaming location for the first time. By the beginning of May, Disney+ amassed 54.5 million subscribers. While Netflix has 182 million subscribers, Disney+ was launched just eight months ago. Given the price of the service ($6.99/month, $70/year), Disney will likely see more than $3.5 billion in revenue from Disney+ this year.
Disney also holds the majority stake in Hulu, a popular streaming platform that houses more mature content than Disney+. Disney originally owned 33% of Hulu but picked up an additional 33% in the acquisition of 20th Century Fox. Comcast (CMCSA) owns the other 33%. Hulu By April, Hulu had more than 32 million subscribers. Hulu also generates ad revenue from users who opt for Hulu’s less expensive “with ads” plan. In a year where theme parks were closed and summer blockbusters were postponed, Hulu and Disney+ remained reliable revenue streams for Disney. Investors can rest assured it’s likely Disney will continue to invest in and expand both streaming platforms. HBO Max New to the streaming stage in the early summer was HBO Max, a platform that hosts all of HBO’s original content archives, coupled with movies in the WarnerMedia library. Both HBO and WarnerMedia were acquired by AT&T (T) in its deal with Time Warner in 2018. While current cable HBO subscribers can access HBO Max for free, it may attract more consumers who already cut the cord or never had cable. As an investment, AT&T is now a fairly diverse portfolio of telecoms and entertainment. By early July, AT&T was trading around $30, still far off its 2019 all-time high of $38.66. AT&T is also known for its higher-than-average dividend yield, at 6.8% currently, which stands out in such a low interest-rate environment. Buying into streaming Overall, it’s tough to invest directly in streaming platforms, with the
Covid-19 beneficiaries The tech companies and their streaming services have fared well during the stay-at-home coronavirus era.
exception of Netflix. However, investors can build up portions of their portfolio around tech, entertainment and telecoms to gain exposure to the streaming services. Investors looking to jump into Netflix may want to hold off until after an earnings announcement. A knee-jerk reaction that causes some selling activity could create a buy opportunity for patient investors. For an all-around entertainment investment, Disney could provide some opportunity. The company’s revenue has been stable the last few quarters, despite the interruptions from COVID-19. When it’s again able to open parks and release record-breaking movies to theaters, its profits could continue to climb. Regardless of how investors achieve portfolio exposure to streaming services, they should consider the impact, or lack of impact, that streaming has on the company’s bottom line and, as always, do their due diligence.
Like Netflix, Amazon stock roared higher after a small slump in February, surpassing $3,000 per share for the first time in early July.
James Blakeway serves as CEO of Quiet Foundation, a data science-driven subsidiary of tastytrade that provides fee-free investment analysis services for self-directed investors. @jamesblakeway
Past performance is no guarantee of future results. Information provided in an EPI Report does not consider the specific profile, objectives or circumstances of any particular investor or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her investment professional. Investment suitability must be independently determined for each individual investor. QF does not make suitability determinations or investment recommendations for investors. EPI utilizes the S&P 500 as its benchmark given that the S&P 500 is considered a barometer of stock performance in the United States. Aspects of the analysis and information found in an EPI Report are based upon simulated and/or hypothetical performance. Simulated and hypothetical performance have inherent limitations and do not represent the actual performance results of any particular investment products. The EPI Report does not guarantee any results or outcomes in the financial markets. Investors should be aware of the methodology used to produce an EPI Report and the inherent limitations when placing reliance on the results. For additional information about EPI Reports, visit the QF website: quietfoundation.com.
august–october 2020 | luckbox
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FINALLY, A NEW GENERATION OF RISK TAKERS By Tom Sosnoff
In early July, The New York Times ran a story critical of the Robinhood trading app for enabling young and often inexperienced investors to trade in “risky” financial products. Financial innovator and educator Tom Sosnoff says those concerns are exaggerated and sees the upside of the new generation’s millions of investors taking stock in themselves— and their financial futures—for the first time. I’ve been on this mission for 20 years now and always knew that some generation would embrace trading before their hair turned silver. I just didn’t know why. It turns out the pandemic—the risk equivalent of 20 standard-deviation fat-tail, blackswan events—created havoc with the traditional perception of predictable risk. A series of unforeseen biological events has introduced much of the world to active risk management techniques. For decades I’ve been telling people that I’m a trader, and they almost always ask the same question: “Yeah, but what’s your real job?” I’m excited to see non-traditional growth in a traditional industry with educators like tastytrade and free apps like dough, Robinhood and others helping to lead the charge. The continued contraction of absurd “advisory” fees, trading costs and commissions is great for consumers. Unfortunately, financial media and much of the rest of the industry want to see the
“Twenty-five million more people are interested in finance and trading today because of financial start-ups.” 64
Robinhoods and other disruptors fail, and I don’t get it. Trust me, even the free, nostrings-attached investor education platform at tastytrade doesn’t get much love! Everyone seems to relish talk of the danger of new financial platforms that enable entry and level the playing field for smaller and newer investors, both from a know-how standpoint and a technology standpoint. Whether it’s challenger banks, robo-advisors or app-based brokerages, the only press is bad press. Still, make no mistake, this high growth space has become a legit outlier and a success story of incredible proportions. I’ve never seen so many companies in one sector engage an entire generation despite formidable technical issues and a lack of revenue caused by a drop in interest rates to practically zero. Trading apps have involved a generation in a way I thought was doable but just couldn’t figure out how to get done. Here’s the bottom line: 25 million more people are interested in finance and trading today because of these financial start-ups. It’s time to stop the nonsense about the dangers of investing and trading when you don’t know what you’re doing. That’s spewed by clueless financial editors and supported by jealous legacy competitors who live in the Dark Ages. First, nobody knows what the markets are going to do next, so enough with the “expert knows best” garbage. Second, financial start-
ups are criticized for encouraging beginners to throw spaghetti against the wall and see what sticks. Think that’s crazy? How do you think every one of us started trading? The people running Citadel, Susquehanna, Wolverine, Peak 6 and most every successful private trading firm and hedge fund in the world began their careers in a fog of uncertainty. I had no clue what I was doing in 1980 when I started trading, and I was doing the same thing young traders are doing today when they trade on apps. I made money on my first options trade and then lost it all on my next 10 trades. Most of the amazing talents in today’s world of finance started out the same way. It’s fine to learn the markets by trading, to learn to take risk—getting into the game and making money or losing money. We were missing a generation. Learning about markets, trading and taking risk has so many benefits it’s likely that the next generation of superstar entrepreneurs and investors just made their first stock trade through the new consumercentric trading platforms. The world of finance Comments or criticisms? is changing, and the Take the Reader simplicity of app-based Survey technology is convenient and engaging. A hidden universe of traders and investors has finally been set free to trade and invest as they see fit. It’s one of the best things to happen to finance in decades. Tom Sosnoff, an online brokerage innovator and financial educator, founded thinkorswim in 1999, started the financial media firm tastytrade (which owns this publication) in 2011, and launched brokerage firm tastyworks in 2017. He serves as co-CEO of tastytrade and appears daily on the tastytrade financial network. @tastytrade
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